PERFORMANCE SHARE
AGREEMENT
This PERFORMANCE
SHARE AGREEMENT (this “Agreement”), made and entered
into as of the 29th day of January, 2009 (the “Grant
Date”), by and between ___(the “Participant”) and
Sanderson Farms, Inc. (together with its subsidiaries and
affiliates, the “Company”), sets forth the terms and
conditions of a Performance Share Award issued pursuant to the
Sanderson Farms, Inc. and Affiliates Stock Incentive Plan, adopted
on February 17, 2005 (the “Plan”) and this
Agreement. Any capitalized term used but not defined herein shall
have the meaning ascribed to such term in the Plan.
1. Grant
and Issuance of Performance Shares; Definition of Restricted
Period .
(a) As
a reward for past service and in consideration of and as an
incentive to the Participant’s performance of future services
on behalf of the Company, and for no additional consideration, the
Company hereby grants to the Participant, as of the Grant Date, the
right to receive at the end of the Restricted Period (hereinafter
defined) that certain number of shares of the Company’s
common stock, par value $1.00 per share (the “Performance
Shares”), determined in accordance with Section 2 below,
subject to the further terms and conditions set forth herein and in
the Plan. The right to receive Performance Shares is subject to
forfeiture as provided herein and may not be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of by the
Participant, other than by will or by the laws of descent and
distribution of the state in which the Participant resides on the
date of his death. The “Performance Period” means the
two fiscal years of the Company commencing November 1, 2008.
The “Restricted Period” means the three fiscal years of
the Company commencing November 1, 2008.
(b) Except
as otherwise provided in this Agreement or the Plan, the right to
receive Performance Shares shall vest and no longer be subject to
forfeiture or any transfer restrictions hereunder at the end of the
Restricted Period, so long as the Participant has remained
continuously employed by the Company from the Grant Date through
such date.
(c) In
the event of (i) the Participant’s termination of
employment with the Company by reason of death or Disability,
(ii) his termination of employment with the Company after his
attainment of eligibility for retirement (as determined by the
Board from time to time), or (iii) a Change of Control prior
to the end of the Restricted Period, the Participant shall be
entitled to receive, at the end of the Restricted Period, a pro
rata portion of the number of Performance Shares to which he
otherwise would have been entitled, determined in accordance with
the ratio that the number of months the Participant was employed
with the Company during the Performance Period bears to the total
number of months in the Performance Period. If the
Participant’s employment with the Company is terminated for
any other reason, voluntarily or involuntarily, prior to the
expiration of the Restricted Period, then the right to receive
Performance Shares at the end of the Restricted Period shall
immediately be forfeited.
(d) If
the Board determines in good faith that the Participant has engaged
in any Detrimental Activity during the period that the Participant
is employed by the Company or during the two-year period following
the Participant’s voluntary termination of employment or his
termination by the Company for Cause, then as of the date of the
Board determination the Participant’s right to receive
Performance Shares shall be forfeited or, if the Performance Shares
have already been issued, the Participant shall repay to the
Company the fair market value of the Performance Shares as of their
issue date.
2.
Issuance of Performance Shares .
(a) The
Participant’s Performance Share Award is a function of his
“Target ROE Award” and his “Target ROS
Award,” calculated as set forth below. The
Participant’s Target ROE Award is ___ Shares. The
Participant’s Target ROS Award is ___Shares.
1
(b) At
the end of the Performance Period, the Board (or its permitted
delegate) will calculate the Company’s Return on Equity for
each of its fiscal years during the Performance Period and divide
the sum by that number of years (the “Average ROE”).
“Return on Equity” means (i) the Company’s
net after-tax income for the fiscal year in question, divided by
(ii) the average of the shareholders’ equity as of the
end of the preceding fiscal year and the shareholders’ equity
as of the end of the fiscal year in question, in each case as shown
in the Company’s audited financial statements (provided that
if there is any change in accounting standards used by the Company
after the Grant Date, Return on Equity will be calculated without
regard to such change). The Participant’s “Threshold
ROE” is 10.10 percent; his “Target ROE” is
12.77 percent; and his “Maximum ROE” is
20.640 percent. If, at the end of the Performance Period, the
Company’s Average ROE is equal to the Threshold ROE, the
Participant will be entitled to receive 50 percent of the
Target ROE Award; if the Company’s Average ROE is equal to
the Target ROE, the Participant will be entitled to receive
100 percent of the Target ROE Award; and if the
Company’s Average ROE is equal to or greater than the Maximum
ROE, the Participant will be entitled to receive 200 percent
of the Target ROE Award. If the Company’s Average ROE is
otherwise between the Threshold ROE and the Maximum ROE, the number
of Performance Shares that the Participant is entitled to receive
will be calculated using a straight-line interpolation. If the
Company’s Average ROE is less than the Threshold ROE, the
Participant will not be entitled to receive any Shares as part of
his Target ROE Award. In no event will the Participant be entitled
to receive pursuant to this Agreement more than 200 percent of
the Target ROE Award.
(c) Likewise,
at the end of the Performance Period, the Board (or its permitted
delegate) will calculate the Company’s Return on Sales for
each of its fiscal years during the Performance Period and divide
the sum by that number of years (the “Average ROS”).
“Return on Sales” means the Company’s net
after-tax income for the fiscal year in question divided by its net
sales for such fiscal year, in each case as shown in the
Company’s audited financial statements (provided that if
there is any change in accounting standards used by the Company
after the Grant Date, Return on Sales will be calculated without
regard to such change). The Participant’s “Threshold
ROS” is 3.37 percent; his “Target ROS” is
3.93 percent; and his “Maximum ROS” is
5.23 percent. If, at the end of the Performance Period, the
Company’s Average ROS is equal to the Threshold ROS, the
Participant will be entitled to receive 50 percent of the
Target ROS Award; if the Company’s Average ROS is equal to
the Target ROS, the Participant will be entitled to receive
100 percent of the Target ROS Award; and if the
Company’s Average ROS is equal to or greater than the
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