FORM OF PERFORMANCE SHARE
AGREEMENT
This PERFORMANCE
SHARE AGREEMENT (this “Agreement”), made and entered
into as of the ___day of
, 2006 (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.
(a) 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 Performance 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 three fiscal years
of the Company commencing November 1, 2006.
(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
Performance 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 Performance Period, the Participant shall be
entitled to receive, at the end of the Performance 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 Performance Period, then the right to receive
Performance Shares at the end of the Performance 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.
(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 ___ percent; his “Target ROE” is ___
percent; and his “Maximum ROE” is ___ 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 150 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 150 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 ___ percent; his “Target ROS” is ___
percent; and his “Maximum ROS” is ___ 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 Maximum
ROS, the Participant will be entitled to receive 150 percent
of the Target ROS Award. If the Company’s Average ROS is
otherwise between the Threshold ROS and the Maximum R
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