UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
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For the quarterly period ended July
31, 2006
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____________to____________
Commission file number
1-14977
(Exact name of registrant as specified in its charter)
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Mississippi
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64-0615843
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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127 Flynt Road, Laurel, Mississippi
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39443
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(Address of principal executive offices)
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(Zip Code)
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(Registrants telephone number, including area code)
(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
R
No
£
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer
as defined in Rule 12b-2 of the Exchange Act.
Large Accelerated filer
o
Acclerated filer
x
Non-acclerated filer
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
£
No
R
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to
be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes
£
No
£
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Common Stock, $1 Per Share: Par Value 20,068,883 shares outstanding as of July 31, 2006.
INDEX
SANDERSON FARMS, INC. AND SUBSIDIARIES
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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July 31,
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October 31,
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2006
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2005
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(Unaudited)
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(Note 1)
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(In thousands)
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Assets
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Current assets:
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Cash and cash equivalents
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$
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3,254
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$
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34,616
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Accounts receivable, net
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43,741
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38,833
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Receivable from insurance companies
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2,947
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14,892
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Refundable income taxes
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4,715
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0
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Inventories
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91,643
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84,713
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Prepaid expenses
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15,292
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11,599
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Total current assets
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161,592
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184,653
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Property, plant and equipment
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568,788
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508,912
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Less accumulated depreciation
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(268,434
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)
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(249,586
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)
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300,354
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259,326
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Other assets
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2,387
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1,812
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Total assets
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$
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464,333
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$
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445,791
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Current liabilities:
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Accounts payable and accrued expenses
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$
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52,985
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$
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72,616
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Current maturities of long-term debt
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4,413
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4,406
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Total current liabilities
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57,398
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77,022
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Long-term debt, less current maturities
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72,373
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6,511
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Claims payable
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2,900
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2,900
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Deferred income taxes
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12,445
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13,705
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Stockholders equity:
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Preferred Stock:
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Series A Junior Participating
Preferred Stock, $100 par value: authorized 500,000 shares; none
issued, Par value to be determined
by the Board of Directors: authorized 4,500,000 shares;
none issued
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Common Stock, $1 par value: authorized
100,000,000 shares; issued and
outstanding shares 20,068,883 and
20,063,070 at July 31, 2006 and
October 31, 2005, respectively
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20,069
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20,063
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Paid-in capital
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11,920
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22,657
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Unearned compensation
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0
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(13,607
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Retained earnings
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287,228
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316,540
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Total stockholders equity
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319,217
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345,653
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Total liabilities and stockholders equity
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$
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464,333
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$
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445,791
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See notes to condensed consolidated financial statements.
3
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended
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Nine Months Ended
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July 31,
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July 31,
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2006
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2005
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2006
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2005
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Net sales
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$
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280,976
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$
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277,011
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$
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756,261
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$
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790,726
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Cost and expenses:
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Cost of sales
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265,732
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219,665
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753,766
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644,648
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Selling, general and administrative
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12,236
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18,406
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39,987
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47,818
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277,968
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238,071
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793,753
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692,466
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OPERATING INCOME (LOSS)
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3,008
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38,940
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(37,492
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98,260
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Other income (expense):
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Interest income
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42
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331
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191
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952
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Interest expense
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(1,089
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(58
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(1,725
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)
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(376
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Other
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36
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7
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90
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75
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(1,011
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280
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(1,444
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651
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INCOME (LOSS) BEFORE INCOME TAXES
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1,997
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39,220
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(38,936
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98,911
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Income tax expense (benefit)
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(1,292
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15,198
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(16,970
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38,328
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NET INCOME (LOSS)
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$
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3,289
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$
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24,022
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$
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(21,966
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$
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60,583
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Earnings (loss) per share:
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Basic
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$
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.16
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$
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1.20
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$
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(1.09
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$
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3.03
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Diluted
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$
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.16
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$
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1.19
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$
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(1.09
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$
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3.01
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Dividends per share
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$
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.12
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$
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.10
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$
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.36
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$
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.30
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Weighted average shares outstanding:
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Basic
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20,067
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20,032
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20,066
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19,999
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Diluted
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20,151
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20,149
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20,066
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20,130
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See notes to condensed consolidated financial statements.
4
SANDERSON FARMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Nine Months Ended
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July 31,
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2006
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2005
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(In thousands)
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Operating activities
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Net income (loss)
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$
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(21,966
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)
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$
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60,583
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Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
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Depreciation and amortization
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22,362
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18,834
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Non-cash stock compensation
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1,905
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1,153
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Change in assets and liabilities:
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Accounts receivable, net
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(4,908
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)
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10,151
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Receivable from insurance companies
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11,945
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0
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Inventories
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(6,930
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)
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(3,773
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Other assets
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(9,130
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)
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113
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Accounts payable, accrued expenses and other liabilities
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(20,891
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)
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1,716
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Total adjustments
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(5,647
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28,194
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Net cash provided by (used in) operating activities
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(27,613
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)
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88,777
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Investing activities
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Capital expenditures
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(63,923
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)
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(96,197
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Net proceeds from sale of property and equipment
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653
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31
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Net cash used in investing activities
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(63,270
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)
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(96,166
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)
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Financing activities
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Principal payments on long-term debt
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(4,131
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)
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(4,125
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)
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Net borrowings from revolving line of credit
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20,000
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0
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Proceeds from long-term borrowings
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50,000
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0
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Tax benefit on exercised stock options
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27
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0
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Net proceeds from issuance of common stock (37,765 shares in 2006 and 83,950 shares in 2005)
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997
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1,956
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Dividends paid
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(7,372
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)
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(6,074
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)
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Net cash provided by (used in) financing activities
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59,521
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(8,243
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)
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Net change in cash and cash equivalents
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(31,362
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)
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(15,632
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)
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Cash and cash equivalents at beginning of period
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34,616
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75,910
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Cash and cash equivalents at end of period
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$
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3,254
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$
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60,278
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See notes to condensed consolidated financial statements.
5
SANDERSON FARMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 31, 2006
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In the opinion of
management, all adjustments consisting of normal recurring accruals considered necessary for a fair
presentation have been included. Operating results for the three-month and nine-month periods ended
July 31, 2006 are not necessarily indicative of the results that may be expected for the year
ending October 31, 2006.
The consolidated balance sheet at October 31, 2005 has been derived from the audited consolidated
financial statements at that date but does not include all of the information and footnotes
required by accounting principles generally accepted in the United States for complete financial
statements. For further information, reference is made to the consolidated financial statements and
footnotes thereto included in the Companys annual report on Form 10-K for the year ended October
31, 2005.
The condensed consolidated statement of operations, for the three and nine months ended July 31,
2005, include a reclassification of certain expenses to cost of sales from net sales, in order to
conform with the classification in the current periods. The reclassification to cost of sales from
net sales were $12.4 million and $33.6 million, respectively, during the three and nine months
ended July 31, 2005.
NOTE 2INVENTORIES
Inventories consisted of the following:
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July 31,
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October 31,
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2006
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2005
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(In thousands)
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Live poultry-broilers and breeders
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$
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51,693
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$
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42,662
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Feed, eggs and other
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12,382
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10,983
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Processed poultry
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17,653
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19,881
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Processed food
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4,919
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6,905
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Packaging materials
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4,996
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|
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4,282
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|
|
|
|
|
|
|
|
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$
|
91,643
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|
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$
|
84,713
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|
|
|
|
|
|
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NOTE 3STOCK COMPENSATION PLANS
The following describes major changes to benefit plans that have occurred since October 31, 2005.
Refer to Notes 8 and 9 of our October 31, 2005 audited financial statements for further information
on our employee benefit plans and stock compensation plans.
During the quarter ended January 31, 2006, the Company granted 40,050 shares of restricted stock to
certain officers, directors and key employees. The restricted stock had a grant date fair value of
$35.25 per share and vests four years from the date of grant. During the second quarter ended
April 30, 2006, the Company granted 9,000 shares of restricted stock to certain directors. The
restricted stock had a grant date fair value of $25.53 per share and vests 3 years from the date of
grant. Also, during the nine months ended July 31, 2006, participants in the Companys Management
Share Purchase Plan purchased a total of 31,952 shares of restricted stock at an average price of
$28.36 and the Company issued 7,936 matching restricted shares. Total stock based compensation
expense applicable to the Companys restricted stock grants was $446,000 and $1,905,000
respectively, for the three months and nine months ended July 31, 2006. Total stock based
compensation expense applicable to the Companys restricted stock grants for the three months and
the nine months ended July 31, 2005 was $655,000 and $1,150,000, respectively.
During the quarter ended January 31, 2006, the Company entered into performance share agreements
that grant certain officers and key employees the right to receive shares of the Companys common
stock, subject to the Companys achievement of certain performance measures. The performance share
agreements specify a target number of shares that a participant can receive based upon the
Companys average return on equity and average return on sales, as defined, during a three-year
performance period beginning November 1, 2005. If the Companys average return on equity and
average return on sales exceed certain threshold amounts for the three-year performance period,
participants will receive 50% to 150% of the target number of shares, depending upon the Companys
level of performance. The target number of shares specified in the performance share agreements
executed during the quarter ended January 31, 2006 totaled 73,400. No compensation cost was
recognized for the performance shares during the three months and nine months ended July 31, 2006
because achievement of the applicable performance measures is not considered probable.
6
NOTE 4 EARNINGS PER SHARE
Basic net income (loss) per share was calculated by dividing net income (loss) by the
weighted-average number of common shares outstanding during the period. Diluted net income (loss)
per share for the three-month and the nine-month periods ended July 31, 2006 was calculated by
dividing net income (loss) by the weighted-average number of common shares outstanding during the
period plus the dilutive effects of stock options and restricted stock outstanding. There were
84,023 weighted average dilutive shares outstanding for the three months ended July 31, 2006.
There were 117,000 and 131,000 weighted average dilutive shares outstanding for the three months
and the nine months ended July 31, 2005, respectively. Restricted stock and employee stock options
representing 81,935 common shares for the nine months ended July 31, 2006 were excluded from the
calculation of diluted net loss per share for the periods because the effect was antidilutive.
NOTE 5 NEW REVOLVING CREDIT FACILITY
On November 17, 2005, the Company entered into a new $200.0 million revolving credit facility with
six banks that extends until 2010. Borrowings are at prime or below and may be prepaid without
penalty. A commitment fee of .25% is payable quarterly on the unused portion of the revolver.
Covenants related to the revolving credit facility include requirements for maintenance of minimum
consolidated net working capital, tangible net worth, debt to total capitalization and current
ratio. As of July 31, 2006, the Company is in compliance with all covenants. The agreement also
establishes limits on dividends, assets that can be pledged and capital expenditures. The Company
had $180.0 million available to borrow under the line of credit at July 31, 2006.
NOTE 6 NEW LONG-TERM DEBT
In the second quarter of fiscal 2006, the Company issued a private placement of $50.0 million in
unsecured debt. The note carries a 6.12% interest rate that matures in 2016 with annual principal
installments of $10.0 million beginning in 2012. The note carries net worth, current ratio and
debt to capitalization covenants comparable to that of the Companys revolving credit facility.
NOTE 7 HURRICANE RECEIVABLE
The Companys financial statements for the quarter ended July 31, 2006, reflect a receivable from
the Companys insurance carriers of $2.9 million for property damage and expenses incurred
resulting from Hurricane Katrina. The Companys total insurance claim through July 31, 2006, for
property damage, expenses incurred and lost profits is approximately $26.0 million, net of the
applicable deductible of $2,750,000. The Company received $5.0 million during the first quarter of
fiscal 2006, $7.5 million during the second quarter of fiscal 2006 and $3.0 million during the
third quarter of fiscal 2006 from the insurance carriers as interim draws on the claim. During the
first quarter of fiscal 2006 and the fourth quarter of fiscal 2005, operating income was reduced by
unrecognized lost profits and expenses of approximately $3.0 million and $5.1 million,
respectively. The Company had no such unrecognized lost profits during the second and third
quarters of fiscal 2006. The unrecognized lost profits and expenses of $8.1 million during the
first quarter of fiscal 2006 and the fourth quarter of fiscal 2005 were the direct result of the
effect of Hurricane Katrina and the Companys efforts to minimize the potential loss from the
hurricane.
Of the $8.1 million of unrecognized lost profits and expenses, $2.0 million was attributable to
additional costs to compensate the Companys contract poultry producers for the loss of revenue
they incurred because of decreased efficiencies resulting from the storm. These payments to the
Companys contract poultry producers were included in cost of sales on the Companys income
statement for the year ended October 31, 2005 and the quarter ended January 31, 2006. While the
Companys management believes these additional payments to contract poultry producers are covered
by the terms of its insurance policies, it cannot deem such recovery as probable, and therefore did
not recognize any possible reimbursement of these costs in its financial statements. The Company
will recognize any reimbursements of these costs if and when they are received, and any such
reimbursements will be classified in the period received as other income, with appropriate
disclosures of the nature of such amount.
Also included in the $8.1 million is $6.1 million in lost profits. For several weeks after
Hurricane Katrina, the Company was unable to sustain the workforce required to produce higher
margin products normally sold by the Company, and therefore suffered $3.3 million in lost profits
due to a less profitable product mix during the weeks immediately following the storm. The reasons
for these human resource issues included the unavailability of fuel, damage to employees personal
property and impassable roads due to down trees and power lines. In addition, the Company lost
profits of $2.8 million that would have been realized on sales of live inventories destroyed by the
hurricane. The Company has not recognized recovery of these lost profits as of July 31, 2006, but
will recognize
7
these amounts as other income when and if it receives reimbursement from the Companys insurance
carriers, with appropriate disclosures of the nature of such amounts.
NOTE 8 INCOME TAXES
In December 2005, congress passed the Gulf Opportunity Zone Act of 2005 (the Act). Among other
things, the Act provides tax credits to companies impacted by Hurricane Katrina. During the third
quarter of fiscal 2006, the Companys management completed its analysis of credits available to the
Company. These credits resulted in an increase in the effective income tax rate from 38.3% for the
six months ended April 30, 2006 to 43.6% for the nine months
ended July 31, 2006. The net benefit for these tax credits was
approximately $2.1 million for the three and nine months ended July
31, 2006.
NOTE 9NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. SFAS
No. 151 amends Accounting Research Bulletin No. 43, Chapter 4, to clarify that abnormal amounts of
idle facility expense, freight handling costs and wasted materials (spoilage) should be recognized
as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production
overhead to inventory be based on the normal capacity of the production facilities during fiscal
years beginning after June 15, 2005. The Companys adoption of SFAS No. 151 in the first quarter of
fiscal 2006 did not have a significant impact on the Companys results of operations, financial
position or cash flows.
In December 2004, the FASB issued SFAS Statement No. 123 (revised 2004), Share-Based Payment,
which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R)
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95,
Statement of Cash Flows. SFAS No. 123(R) requires all share-based payments to employees,
including grants of employee stock options, restricted stock and performance-based shares to be
recognized in the income statement based on their fair values. SFAS No. 123(R) also requires the
benefits of tax deductions in excess of recognized compensation cost to be reported as a financing
cash flow, rather than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash flows in periods
after adoption. In the first quarter of fiscal 2006, the Company adopted SFAS No. 123(R) using the
modified prospective method. Under the modified prospective method, compensation cost will be
recognized for all share-based payments granted after the adoption of SFAS No. 123(R) and for all
awards granted to employees prior to the adoption date of SFAS No. 123R that remain unvested on the
adoption date. Accordingly, no restatements were made to prior periods. The adoption of SFAS No.
123(R) was not significant to the Companys operations or financial position for fiscal 2006.
Prior to adoption of SFAS No. 123(R), the Company accounted for share-based payments to employees
using APB 25s intrinsic value method and, as such, generally recognized no compensation cost for
employee stock options. Under APB 25, the Company recorded unearned compensation in the
shareholders equity section of its balance sheet upon the grant of restricted stock and amortized
the unearned compensation over the vesting period. Based upon the provisions of SFAS No. 123(R),
the Company was required to reverse the previously recorded unearned compensation and to accrue
stock based compensation expense as it is earned.
The Companys share-based compensation plans are described in Note 9 of the consolidated financial
statements included in the Companys Annual Report on Form 10-K for the fiscal year ended December
31, 2005. These plans have not been modified in the 2006 fiscal year. The Company has not granted stock
options since fiscal 2002. Since the beginning of fiscal 2005, the Companys share-based
compensation has primarily been in the form of restricted stock awards.
The following restricted stock transactions have occurred during fiscal 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Number
|
|
Average Grant
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Of Shares
|
|
Price
|
Restricted stock awards outstanding at October 31, 2005
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343,000
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$
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44.56
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Granted during fiscal 2006 as of July 31, 2006
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49,050
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$
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33.46
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Forfeited during fiscal 2006 as of July 31, 2006
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(8,450
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)
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$
|
43.97
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Restricted stock awards outstanding at July 31, 2006
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383,600
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$
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43.15
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|
|
|
|
|
|
|
|
|
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As of July 31, 2006, none of these restricted awards are vested. The aggregate intrinsic value of
stock options outstanding of 214,230 as of July 31, 2006 was $3.0 million. During the nine months
ended July 31, 2006, 5,813 options were exercised with an intrinsic value of $86,000. As of July
31, 2006, the company had $12.4 million in unrecognized share-based compensation costs that will be
recognized over a weighted average period of 4.3 years.
8
On July 13, 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109. Interpretation 48 clarifies the accounting
for uncertainty in income taxes recognized in a companys financial statements in accordance with
Statement No. 109 and prescribes a recognition threshold and measurement attribute for financial
statement disclosure of tax positions taken or expected to be taken on a tax return. Additionally,
Interpretation No. 48 provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. Interpretation 48 is effective for
fiscal years beginning after December 15, 2006, with early
adoption permitted. The Company is currently
evaluating the impact the adoption of Interpretation 48 will have on
the Companys consolidated financial position, results of
operations and cash flows.
NOTE 10 OTHER MATTERS
On May 19, 2003, a lawsuit was filed on behalf of 74 individual plaintiffs in the United States
District Court for the Southern District of Mississippi alleging an intentional pattern and
practice of race discrimination and hostile environment in violation of Title VII and Section 1981
rights. This lawsuit alleges that Sanderson Farms, in its capacity as an employer, has engaged
in (and continues to engage in) a pattern and practice of intentional unlawful employment
discrimination and intentional unlawful employment practices at its plants, locations, off-premises
work sites, offices, and facilities in Pike County, Mississippi...in violation of Title VII of the
Civil Rights Act of 1964 (as amended)... . The action further alleges that Sanderson Farms has
willfully, deliberately, intentionally, and with malice deprived black workers in its employ of the
full and equal benefits of all laws in violation of the Civil Rights Act. On June 6, 2003,
thirteen additional plaintiffs joined in the pending lawsuit by the filing of a First Amended
Complaint. This brought the total number of plaintiffs to 87.
The plaintiffs in this lawsuit seek, among other things, back pay and other compensation in the
amount of $500,000 each and unspecified punitive damages. The Company has aggressively defended
the lawsuit and will continue to do so. The Company has a policy of zero tolerance for
discrimination of any type, and preliminarily investigated the complaints alleged in this lawsuit
when they were brought as EEOC charges. This investigation, which is ongoing, has substantiated
none of the complaints alleged in the lawsuit, and the Company believes the charges are without
merit. On July 21, 2003, the Company filed a Motion to Dismiss or, alternatively, Motion for
Summary Judgment or Motion for More Definite Statement. On December 17, 2003, the court entered
its order denying the Companys motion for summary judgment, but granting its motion for more
definite statement. The court also ordered that the union representing some of the plaintiffs be
joined as a defendant. The court gave the plaintiffs until January 26, 2004 to amend their
complaint to more specifically set out their claims. Although the Companys motion to dismiss was
denied, the courts order permits the Company to refile its dispositive motions after the
plaintiffs file an amended complaint. On January 27, 2004, 84 of the 87 plaintiffs filed their
Second Amended Complaint. The remaining three plaintiffs voluntarily dismissed their claims. The
Company filed its answer to the plaintiffs second amended complaint on March 26, 2004, denying any
and all liability and setting forth numerous affirmative defenses. On July 1, 2004, the Company
filed a Motion to Sever Plaintiffs Cases, wherein the Company requested that the court sever the
pending lawsuit with 84 plaintiffs into 84 separate lawsuits, one for each plaintiff. The Company
asserted in its motion that this relief should be granted because the 84 cases are too dissimilar
and were misjoined. The Company further asserted that it would be prejudiced by being subjected to
one common trial for 84 plaintiffs, rather than separate trials for each plaintiff. On August 26,
2004, the Court issued its order severing this case into six separate causes of action, with the
plaintiffs divided into six groups based on their job classifications. On October 12, 2004, the
plaintiffs filed new complaints for each of the six severed cases, which the Company answered on
November 24, 2004. A case management conference for each of the six cases was held on December 28,
2004, during which various procedural issues related to discovery were settled. On September 28,
2005, the Company filed a Motion for a Pre-Trial conference seeking to preclude the plaintiffs from
utilizing a pattern and practice method of proof. This method of proof is typically reserved for
class action cases, or cases brought by the government. The plaintiffs had indicated their
intention to use this method of proof in the pleadings and discovery requests filed up to the date
of the Companys motion. On October 26, 2005, the court entered an order ruling that the
plaintiffs would not be permitted to use the pattern and practice method of proof. Six separate
trials are scheduled during 2006 and 2007 for the plaintiffs causes of actions. Discovery is
complete in the first of the six trials, which is currently set for September 18, 2006.
Three of the six cases or groups of plaintiffs (live-haul drivers, chicken catchers and forklift
drivers) had been originally set for consecutive trials beginning on September 18, 2006. After
discovery for those three cases ended on June 23, 2006, the Court continued the trials for the
chicken catchers and forklift drivers. No trial date for those two cases, or any of the cases
other than the trial for live-drivers on September 18, 2006, has been set. The Company filed
Motions for Summary Judgment on each of the plaintiffs claims on July 7, 2006, in which the
Company asked the Court to rule in its favor. The plaintiffs responded to the Motions for Summary
Judgment on August 14, 2006, and the Companys Reply is due on August 31, 2006. In conjunction
with its Motions for Summary Judgment on plaintiffs claims, the Company filed a Motion for
Separate Trials, or in the Alternative, for Further Severance of Plaintiffs. For the live-haul
driver plaintiffs whose claims the Court may allow to proceed to trial on September 18, 2006, this
motion asks the Court to conduct separate trials for each plaintiff rather than allow the
plaintiffs to try all of their claims together at one trial or, alternatively, to conduct trials
with smaller groups of plaintiffs. As it did in its Motion to Sever previously filed with Court at
the beginning of discovery, the Company is asserting in the motion that it would be prejudiced by
being subjected to one common trial, rather than separate trials for each plaintiff. This motion
is currently pending.
9
On June 6, 2006, Annie Collins, a former employee of the processing division subsidiary, on behalf
of herself and as representative of a class of individuals who are similarly situated and who have
suffered the same or similar damages filed a complaint against the Companys processing and
production subsidiaries in the United States District Court for the Eastern District of Louisiana.
Since the filing of the Complaint, 1,523 individuals purportedly have given their consent to be a
party plaintiff to this action. Plaintiffs allege that the Companys subsidiaries violated the
Fair Labor Standards Act by failing to pay plaintiffs and other hourly employees for the time spent
donning and doffing protective and sanitary clothing and performing other alleged compensable
activities, and that Sanderson automatically deducted thirty minutes from each workers workday
for a meal break regardless of the actual time spent on break. Plaintiffs also allege that they
were not paid overtime wages at the legal rate. Plaintiffs seek unpaid wages, liquidated damages
and injunctive relief. On July 24, 2006, plaintiffs filed their First Amended Motion for
Protective Order, Sanctions and a Corrective Notice related to a letter the Company sent to all
employees concerning the donning and doffing issue. The letter informed employees that, among
other things, the Company was in negotiations with the Department of Labor about any adjustment to
its pay practices and its calculations of any back pay obligations. The Company responded to the
plaintiffs motion and filed a Motion to Stay Proceedings Pending Conciliation Efforts with the
Department of Labor. On July 25, 2006, plaintiffs responded to the Companys motion, which is
still pending. On July 31, 2006, the Company filed its Answer to the plaintiffs Complaint.
On July 20, 2006, ten current and former employees of the processing division subsidiary filed an
action nearly identical to the one described above. No notice that any other employees have given
their consent to be a party plaintiff to this action has been received to date. The Company is
attempting to reach an agreement regarding the claims of all current and former employees through
negotiations with the Department of Labor. Those discussions are currently ongoing. In the
meantime, the Company will vigorously defend the donning and doffing litigation. The Company
strongly believes its pay practices are consistent with applicable state and federal law, and were
upheld by the United States Fifth Circuit Court of Appeals in a case similar to these cases.
The Company is also involved in various other claims and litigation incidental to its business.
Although the outcome of the matters referred to in the preceding sentence cannot be determined with
certainty, management, upon the advice of counsel, is of the opinion that the final outcome should
not have a material effect on the Companys consolidated results of operation or financial
position.
The Company recognizes the costs of legal defense for the legal proceedings to which it is a party
in the periods incurred. A determination of the amount of reserves required, if any, for these
matters is made after considerable analysis of each individual case. Because the outcome of these
cases cannot be determined with any certainty, no estimate of the possible loss or range of loss
resulting from the cases can be made. At this time, the Company has not accrued any reserve for
any of these matters. Future reserves may be required if losses are deemed probable due to changes
in the Companys assumptions, the effectiveness of legal strategies, or other factors beyond the
Companys control. Future results of operations may be materially affected by the creation of or
changes to reserves or by accruals of losses to reflect any adverse determinations of these legal
proceedings.
10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Sanderson Farms, Inc.
We have reviewed the condensed consolidated balance sheet of Sanderson Farms, Inc. and subsidiaries
as of July 31, 2006, and the related condensed consolidated statements of operations for the
three-month and nine-month periods ended July 31, 2006 and 2005, and the condensed consolidated
statements of cash flows for the nine-month periods ended July 31, 2006 and 2005. These financial
statements are the responsibility of the Companys management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying
analytical procedures to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit conducted in accordance
with the standards of the Public Company Accounting Oversight Board, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the
condensed consolidated financial statements referred to above for them to be in conformity with
U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Sanderson Farms, Inc. and
subsidiaries as of October 31, 2005, and the related consolidated statements of income,
stockholders equity, and cash flows for the year then ended not presented herein, and in our
report dated December 22, 2005, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of October 31, 2005, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
New Orleans, Louisiana
August 28, 2006
11
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following Discussion and Analysis should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of the
Companys Annual Report on Form 10-K for its fiscal year ended October 31, 2005.
This Quarterly Report, and other periodic reports filed by the Company under the Securities
Exchange Act of 1934, and other written or oral statements made by it or on its behalf, may include
forward-looking statements, which are based on a number of assumptions about future events and are
subject to various risks, uncertainties and other factors that may cause actual results to differ
materially from the views, beliefs and estimates expressed in such statements. These risks,
uncertainties and other factors include, but are not limited to the following:
(1) Changes in the market price for the Companys finished products and feed grains, both of which
may fluctuate substantially and exhibit cyclical characteristics typically associated with
commodity markets.
(2) Changes in economic and business conditions, monetary and fiscal policies or the amount of
growth, stagnation or recession in the global or U.S. economies, either of which may affect the
value of inventories, the collectability of accounts receivable or the financial integrity of
customers.
(3) Changes in the political or economic climate, trade policies, laws and regulations or the
domestic poultry industry of countries to which the Company or other companies in the poultry
industry ship product, and other changes that might limit the Companys or the industrys access to
foreign markets.
(4) Changes in laws, regulations, and other activities in government agencies and similar
organizations applicable to the Company and the poultry industry and changes in laws, regulations
and other activities in government agencies and similar organizations related to food safety.
(5) Various inventory risks due to changes in market conditions.
(6) Changes in and effects of competition, which is significant in all markets in which the Company
competes, and the effectiveness of marketing and advertising programs. The Company competes with
regional and national firms, some of which have greater financial and marketing resources than the
Company.
(7) Changes in accounting policies and practices adopted voluntarily by the Company or required to
be adopted by accounting principles generally accepted in the United States.
(8) Disease outbreaks affecting the production performance and/or marketability of the Companys
poultry products.
(9) Changes in the availability and cost of labor and growers.
Readers are cautioned not to place undue reliance on forward-looking statements made by or on
behalf of Sanderson Farms. Each such statement speaks only as of the day it was made. The Company
undertakes no obligation to update or to revise any forward-looking statements. The factors
described above cannot be controlled by the Company. When used in this quarterly report, the words
believes, estimates, plans, expects, should, outlook, and anticipates and similar
expressions as they relate to the Company or its management are intended to identify
forward-looking statements.
The Companys poultry operations are integrated through its management of all functions
relative to the production of its chicken products, including hatching egg production, hatching,
feed manufacturing, raising chickens to marketable age (grow out), processing, and marketing.
Consistent with the poultry industry, the Companys profitability is substantially impacted by the
market prices for its finished products and feed grains, both of which may fluctuate substantially
and exhibit cyclical characteristics typically associated with commodity markets. Other costs,
excluding feed grains, related to the profitability of the Companys poultry operations, including
hatching egg production, hatching, growing, and processing cost, are responsive to efficient cost
containment programs and management practices.
12
The Companys processed and prepared foods product line includes over 100 institutional and
consumer packaged food items that it sells nationally and regionally, primarily to distributors,
food service establishments and retailers. A majority of the prepared food items are made to the
specifications of food service users.
On January 12, 2006, Sanderson Farms, Inc. announced that sites in Waco and McLennan County,
Texas have been selected for construction of a new poultry processing plant and wastewater
treatment facility and hatchery. These facilities will comprise a state-of-the-art poultry complex
with the capacity to process 1.2 million birds per week for the big bird deboning market. At full
capacity, the complex will employ approximately 1,300 people, will require 150 contract growers,
and will be equipped to process and sell 8.4 million pounds per week of dressed poultry meat at
full production. In May 2006, the Company announced it would delay construction on this facility
by 90 days. Construction has now begun, and initial operation at the facility is scheduled to
begin during the Companys fourth fiscal quarter of 2007.
Sanderson Farms expects to invest approximately $81.0 million in the new Texas complex, and
anticipates that associated contract growers will invest an additional $115.0 million in poultry
production facilities.
EXECUTIVE OVERVIEW OF RESULTS
The Companys financial results for the three months and nine months ended July 31, 2006 reflect
significantly lower prices for the Companys poultry products due to an oversupply of poultry
products. This oversupply resulted in part from the appearance of H5N1 avian influenza in certain
countries of Asia and Europe during the winter of 2006, which reduced demand for poultry products
in the affected countries and in Russia, a significant customer for the United States poultry
industry. While market conditions were difficult when compared to last years third quarter, they
have improved significantly when compared to this years second quarter. The Company also
experienced higher feed costs during the second and third quarters of fiscal 2006 as compared to the
second and third quarters of fiscal 2005. In addition, anticipated inefficiencies from the start-up of the
Companys new poultry processing complex in South Georgia, the conversion of the Collins,
Mississippi poultry processing plant to the big bird deboning market and higher energy costs
increased the Companys average cost of poultry products during the three months and nine months
ended July 31, 2006 as compared to the same periods during fiscal 2005.
In response to poor market conditions, in addition to the delay in construction at the Waco, Texas
facility, the Company reduced production by 175,000 head per week at its big bird deboning plants,
or just under 6.0% of the big bird plants capacity. The Company also reduced production at its
chill pack plants by 100,000 head per week. These reductions began affecting weekly production at
our processing plants in late June and early July. These cutbacks, which are partially offset by
the increase in head processed in Moultrie as described below, result in a 4.3% reduction in head
processed from our previously planned production level.
The Company also took steps to delay the scheduled increase in production at Collins, Mississippi, and to slow
the scheduled increase at the Moultrie, Georgia processing facility. With respect to Collins, the
Company has indefinitely deferred the 150,000 head per week expansion originally scheduled to begin
this summer. All of the physical asset additions in Collins necessary to support the increase at
that plant were completed as originally scheduled. The Company is currently processing
approximately 1 million head per week in Moultrie, and previously announced its intentions to
expand production to a processing rate of 1,200,000 head per week by the end of July 2006.
However, the Company gradually increased production in Moultrie by only 200,000 head per week
through August, and will now reach the processing rate of 1,200,000 head per week by the end of its
fiscal year.
RESULTS OF OPERATIONS
Net sales for the third quarter of fiscal 2006 were $281.0 million as compared to $277.0 million
for the same quarter of fiscal 2005, an increase of $4.0 million or 1.4%. The increase in net
sales during the second quarter of fiscal 2006 reflects a 22.7% increase in the pounds of poultry
products sold and a 35.3% increase in the pounds of prepared food products sold, offset by a
decrease in the average sales price of the Companys poultry and prepared food products sold of
19.1% and 7.0%, respectively. The additional pounds of poultry products sold can be attributed to
the new complex in South Georgia, which began operations during the fourth quarter of fiscal 2005
and an increase in the average live weight of poultry products sold of 2.1%, resulting primarily
from the conversion of the Collins, Mississippi processing plant to serve the big bird market. The
decrease in the average sales price of the Companys poultry products resulted primarily from
decreases in the market prices of boneless breast meat, tenders and bulk leg quarters of 7.7%,
15.6% and 22.5%, respectively, when compared to last years third quarter. In addition, a simple
average of the Georgia Dock prices for whole chickens decreased 6.8% when these same periods are
compared. During the third quarter of fiscal 2006, the combination of sluggish demand for poultry
products in the domestic and export markets depressed market prices compared with the levels the
Company experienced in the third quarter of fiscal 2005. Net sales of prepared food products
increased $5.8 million, or 25.9% during the three months ended July 31, 2006 as compared to the
three months ended July 31, 2005.
13
As a result of the challenging market conditions during the first nine months of fiscal 2006 as
compared to the first nine months of fiscal 2005, net sales decreased $34.5 million or 4.4% despite
an increase in the pounds of poultry products sold and prepared food products sold of 12.4% an
24.0%, respectively. Earlier during fiscal 2006, demand for poultry products was greatly impacted
by the occurrence of H5N1 avian influenza in certain countries of Asia and Europe, which affected
demand for poultry products in the affected countries and in Russia, a significant customer for
United States poultry products. The industry experienced a decrease in bulk leg quarter prices and
wings of 25.6% and 10.5%, respectively, as well as a decrease in the market prices for boneless
breast meat and tenders of 19.9% and 23.6%. Also, a simple average of the Georgia Dock prices for
whole birds was 6.1% lower in the nine months ended July 31, 2006 as compared to the same period a
year ago. The poultry markets improved during June and July, and have continued to improve during
August of 2006 as the industry experienced a more traditional balance between supply and demand for
poultry products in the market place. Net sales of prepared food
products increased $10.9 million, or 14.5% during the nine months
ended July 31, 2006 as compared to the nine months ended July 31,
2005.
Cost of sales for the three months ended July 31, 2006, were $265.7 million, an increase of $46.1
million, or 21.0% as compared to the same three months ended July 31, 2005. Cost of sales of the
Companys poultry products increased $41.6 million, or 20.9%. The increase in the cost of sales of
poultry products resulted from an increase in the average cost of feed in flocks sold of 4.5% and
an increase in the pounds of poultry products sold at the Companys new poultry complex in South
Georgia, which will have a higher average cost of sales than the Company as a whole until full
capacity is reached. The Company estimates that cost of sales in the three months ended July 31,
2006 was affected by approximately $1.4 million due to the start up nature of the new Georgia
facility. As previously mentioned, the Companys cost of sales was negatively impacted by an
increase in the cost of corn during the third quarter of fiscal 2006 as compared to the third
quarter of 2005. A simple average of corn prices during the third quarter of fiscal 2006 as
compared to same quarter during fiscal 2005 reflects an increase of 6.3%, while soybean meal prices
remained flat. The Companys cost of sales was also higher during the quarter due to an increase
in the pounds of prepared food products sold of 35.3%. The Companys prepared food products have a
higher average cost of sales per pound than the Companys poultry products. Cost of sales of
prepared food products increased $4.5 million or 21.5%.
Cost of sales for the first nine months of fiscal 2006 was $753.8 million, an increase of $109.1
million or 16.9%. The increase in cost of sales can be attributed to the additional pounds of
product sold at the new complex in South Georgia, which will have a higher average cost of sales
than the Company as a whole until full capacity is reached. The increase in the pounds sold at the
new complex in South Georgia was partially offset by fewer pounds sold in the first quarter of
fiscal 2006 as compared to the first quarter of fiscal 2005 at the Companys Louisiana and
Mississippi poultry operations due to the conversion of the Collins, Mississippi plant to a big
bird deboning plant from a chill pack plant and fewer pounds produced as a result of Hurricane
Katrina. Although prices for corn and soybean meal reflect increases of 4.1% and
7.6%, respectively, for the first nine months of fiscal 2006 as compared to the first nine months
of fiscal 2005, the Company only experienced an increase in average feed costs of 2.2% due to
favorable purchases of the Companys grain requirements. Cost of sales of the Companys prepared
food products increased $10.2 million or 15.1%. This increase resulted from additional pounds of
prepared food products sold of 24.0% and a decrease in the average cost of chicken which is a major
raw material used in many of the products sold by the Companys prepared foods facility.
Selling, general and administrative costs for the three months ended July 31, 2006 were $12.2
million as compared to $18.4 million during the three months ended July 31, 2005. Selling, general
and administrative costs for the nine months ended July 31, 2006 and 2005 were $40.0 million and
$47.8 million, respectively. The decrease in selling, general and administrative costs for the
third quarter and first nine months of fiscal 2006 of $6.2 million and $7.8 million, respectively,
resulted from lower advertising expenditures and lower expenses than during the comparable periods
of fiscal 2005 related to the start up of the new poultry complex in South Georgia in fiscal 2005.
All costs of operating the new complex in South Georgia, except for certain sales related
expenditures, are included in cost of sales during fiscal 2006. In fiscal 2005, the start-up costs
incurred were included in selling, general and administrative costs until operations began in the
fourth quarter of fiscal 2005.
For the three months ended July 31, 2006, the Companys operating income was $3.0 million as
compared to an operating income of $38.9 million for the three months ended July 31, 2005. For the
nine months ended July 31, 2006, the Companys operating loss was $37.5 million as compared to an
operating income of $98.3 million for the nine months ended July 31, 2005. The reduction of $35.9
million during the third quarter of fiscal 2006 and $135.7 million for the first nine months of
fiscal 2006 is the result of a significant reduction in poultry prices during fiscal 2006 as
compared to fiscal 2005 and the start-up of initial operations at the new poultry complex in South
Georgia and the conversion of the Collins, Mississippi processing plant to a big bird deboning
plant. The Collins, Mississippi plant was down for one week during the first quarter of fiscal
2006 to allow for the installation of equipment necessary to convert the plant to its new product
mix. Higher energy prices during fiscal 2006 as compared to fiscal 2005 and an estimated loss of
$3.0 million from Hurricane Katrina during the first quarter of fiscal 2006 added to the
challenging market environment. The estimated loss of $3.0 million from Hurricane Katrina resulted
from unrecognized lost profits and certain expenses that were the direct result of the Companys
efforts to minimize the effect of Hurricane Katrina. The Company did not experience a loss from
Hurricane Katrina during its second and third quarters of fiscal 2006.
Interest expense during the three months and nine months ended July 31, 2006 was $1.1 million and
$1.7 million. The resulting increase in interest expense as compared to the three months and nine
months ended July 31, 2005 was due to a combination of lower
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interest expense during the 2005 periods resulting from the capitalization of interest for the
construction of the new general offices in Laurel, Mississippi, the new poultry complex in South
Georgia during fiscal 2005 and higher outstanding debt and interest rates during fiscal 2006 as
compared to fiscal 2005.
The Companys effective tax rate for the three and nine months ended July 31, 2005 was 38.75%
compared to 43.6% for the nine months ended July 31, 2006. The 2005 effective tax rate differs
from the statutory federal rate due to state income taxes and certain nondeductible expenses for
federal income tax purposes. The 2006 effective tax rate differs from the statutory federal rate
due to state income taxes, certain nondeductible expenses for federal income tax purposes and the
benefit of certain federal income tax credits available as the result of the impact of Hurricane
Katrina on the Company. In the third quarter of fiscal 2006, the Company increased the estimate of
its annual effective tax rate to 43.6% from its second quarter 2006 estimated annual rate of 38.3%
due primarily to an increase in its estimate of federal income tax credits available as the result
of Hurricane Katrina. As a result of the increase in the estimated annual effective income tax
rate, the Company recorded an income tax benefit of $1,292 for the three months ended July 31, 2006
on income before income taxes of $1,997 for the three month period.
The Companys actual effective rate for the year ended October
31, 2006 may differ from the current estimates based on the results
of operations for the fourth quarter of fiscal 2006 and final
determination of the income tax credits available to the Company.
The Companys net income was $3.3 million or $.16 per share for the third quarter of fiscal 2006
as compared to net income for the third quarter of fiscal 2005 of $24.0 million, or $1.19 per
share. The Companys net loss was $22.0 million or $1.09 per share for the nine months of fiscal
2006 as compared to a net income of $60.6 million or $3.01 per share for the first nine months of
fiscal 2005. During the first quarter of fiscal 2006 the Company incurred certain expenses and
lost profits of $3.0 million before income taxes from Hurricane Katrina. The Company intends to
seek reimbursement for the unrecognized lost profits and incurred expense of $3.0 million incurred
during the first quarter of fiscal 2006. Negotiations with the Companys insurance carriers are
expected to be completed during fiscal 2006.
Liquidity and Capital Resources
The Companys working capital at July 31, 2006 was $104.2 million and its current ratio was 2.8 to
1. This compares to working capital of $107.6 million and a current ratio of 2.4 to 1 as of
October 31, 2005. During the nine months ended July 31, 2006, the Company spent approximately $63.9
million on planned capital projects.
The Companys capital budget for fiscal 2006 is approximately $94.0 million at July 31, 2006, and
will be funded by cash on hand, internally generated working capital, cash flows from operations
and available credit. The Company has $180.0 million available under its revolving line of credit
at July 31, 2006. The fiscal 2006 capital budget includes approximately $13.0 million in operating
leases and $9.4 million to complete construction of the new corporate office building in Laurel,
Mississippi. In addition, the fiscal 2006 capital budget includes $22.5 million to build a feed
mill in Collins, Mississippi, complete the conversion of the Collins, Mississippi processing
facility to a big bird deboning plant and expand the Collins, Mississippi hatchery, $9.5 million to
begin construction of the new poultry complex in Waco, Texas, and $4.8 million to improve operating
efficiencies at the Companys prepared foods plant in Jackson, Mississippi.
On January 12, 2006, Sanderson Farms, Inc. announced that sites in Waco and McLennan County, Texas
have been selected for construction of a new poultry processing plant, wastewater treatment
facility and hatchery. Sanderson Farms will also expand its feed mill in Easterly, Texas to
satisfy the live production needs associated with the new complex. The Company expects to invest
approximately $81.0 million in the new complex during fiscal 2006 and fiscal 2007.
On November 17, 2005, the Company entered into a new revolving credit facility. The new facility,
among other things, increased allowed capital expenditures, changed the net worth covenant to
reflect the Companys new dividend rate, extended the committed revolver by five years rather than
the usual three year extension, reduced the interest rate charged on amounts outstanding, and
removed a letter of credit commitment related to certain industrial development bonds.
In the second quarter of fiscal 2006, the Company issued a private placement of $50.0 million in
unsecured debt. The note carries a 6.12% interest rate that matures in 2016 with annual principal
installments of $10.0 million beginning in 2012. The note carries net worth, current ratio and
debt to capitalization covenants comparable to that of the Companys revolving credit facility.
The Company regularly evaluates both internal and external growth opportunities, including
acquisition opportunities and the possible construction of new production assets, and conducts due
diligence activities in connection with such opportunities. The cost and terms of any financing to
be raised in conjunction with any growth opportunity, including the Companys ability to raise debt
or equity capital on terms and at costs satisfactory to the Company, and the effect of such
opportunities on the Companys balance sheet, are critical considerations in any such evaluation.
15
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting standards generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from
these estimates and assumptions, and the differences could be material.
The Companys Summary of Significant Accounting Policies, as described in Note 1 of the Notes
to the Consolidated Financial Statements that are filed with the Companys latest report on Form
10-K, should be read in conjunction with this Managements Discussion and Analysis of Financial
Condition and Results of Operations. Management believes that the critical accounting policies and
estimates that are material to the Companys Consolidated Financial Statements are those described
below.
Allowance for Doubtful Accounts
In the normal course of business, the Company extends credit to its customers on a short-term
basis. Although credit risks associated with our customers are considered minimal, the Company
routinely reviews its accounts receivable balances and makes provisions for probable doubtful
accounts. In circumstances where management is aware of a specific customers inability to meet its
financial obligations to the Company, a specific reserve is recorded to reduce the receivable to
the amount expected to be collected. If circumstances change (i.e., higher than expected defaults
or an unexpected material adverse change in a major customers ability to meet its financial
obligations to us), our estimates of the recoverability of amounts due us could be reduced by a
material amount, and the allowance for doubtful accounts and related bad debt expense would
increase by the same amount.
Hurricane Receivable from Insurance Companies
The Company has recorded insurance recoveries related to Hurricane Katrina when realization of
the claim for recovery has been deemed probable and only to the extent the loss has been recorded
in the financial statements. Any possible gain that may result from recoveries under the Companys
insurance policies will be recognized when the insurance proceeds are received.
Inventories
Processed food and poultry inventories and inventories of feed, eggs, medication and packaging
supplies are stated at the lower of cost (first-in, first-out method) or market. If market prices
for poultry or feed grains move substantially lower, the Company would record adjustments to write
down the carrying values of processed poultry and feed inventories to fair market value, which
would increase the Companys costs of sales.
Live poultry inventories of broilers are stated at the lower of cost or market and breeders at
cost less accumulated amortization. The cost associated with broiler inventories, consisting
principally of chicks, feed, medicine and payments to the growers who raise the chicks for us, are
accumulated during the growing period. The cost associated with breeder inventories, consisting
principally of breeder chicks, feed, medicine and grower payments are accumulated during the
growing period. Capitalized breeder costs are then amortized over nine months using the
straight-line method. Mortality of broilers and breeders is charged to cost of sales as incurred.
If market prices for chickens, feed or medicine or if grower payments increase (or decrease) during
the period, the Company could have an increase (or decrease) in the market value of its inventory
as well as an increase (or decrease) in costs of sales. Should the Company decide that the nine
month amortization period used to amortize the breeder costs is no longer appropriate as a result
of operational changes, a shorter (or longer) amortization period could increase (or decrease) the
costs of sales recorded in future periods. High mortality from disease or extreme temperatures
would result in abnormal charges to cost of sales to write-down live poultry inventories.
Long-Lived Assets
Depreciable long-lived assets are primarily comprised of buildings and machinery and
equipment. Depreciation is provided by the straight-line method over the estimated useful lives,
which are 15 to 39 years for buildings and 3 to 12 years for machinery and equipment. An increase
or decrease in the estimated useful lives would result in changes to depreciation expense.
The Company continually evaluates the carrying value of its long-lived assets for events or
changes in circumstances that indicate that the carrying value may not be recoverable. As part of
this evaluation, the Company estimates the future cash flows expected to result from the use of the
asset and its eventual disposal. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an impairment loss is
recognized to reduce the carrying value of the long-lived asset to the estimated fair value of the
asset. If the Companys assumptions with respect to the future expected cash flows associated with
the use of long-lived assets currently recorded change, then the Companys determination that no
impairment charges are necessary may change and result in the Company recording an impairment
charge in a future period. The Company did not identify any indicators of impairment during the
current fiscal period.
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Accrued Self Insurance
Insurance expense for workers compensation benefits and employee-related health care benefits
are estimated using historical experience and actuarial estimates. Stop-loss coverage is maintained
with third party insurers to limit the Companys total exposure. Management regularly reviews the
assumptions used to recognize periodic expenses. If historical experience proves not to be a good
indicator of future expenses, if management were to use different actuarial assumptions, or if
there is a negative trend in the Companys claims history, there could be a significant increase or
decrease in cost of sales depending on whether these expenses increased or decreased, respectively.
Income Taxes
The Company determines its effective tax rate by estimating its permanent differences
resulting from differing treatment of items for financial and income tax purposes. The Company is
periodically audited by taxing authorities and considers any adjustments made as a result of the
audits in considering the tax expense. Any audit adjustments affecting permanent differences could
have an impact on the Companys effective tax rate.
Contingencies
The Company is a party to a number of legal proceedings as discussed
in Note 10 of our
unaudited quarterly condensed consolidated financial statements filed with this report. We
recognize the costs of legal defense in the periods incurred. A determination of the amount of
reserves required, if any, for these matters is made after considerable analysis of each individual
case. Because the outcome of these cases cannot be determined with any certainty, no estimate of
the possible loss or range of loss resulting from the cases can be made. At this time, the Company
has not accrued any reserve for any of these matters. Future reserves may be required if losses
deemed probable due to changes in the Companys assumptions, the effectiveness of legal strategies,
or other factors beyond the Companys control. Future results of operations may be materially
affected by the creation of or changes to reserves or by accruals of losses to reflect any adverse
determination of these legal proceedings.
New Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4. SFAS No. 151 amends Accounting Research Bulletin No. 43, Chapter 4, to clarify that
abnormal amounts of idle facility expense, freight handling costs and wasted materials (spoilage)
should be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation
of fixed production overhead to inventory be based on the normal capacity of the production
facilities during fiscal years beginning after June 15, 2005. The Companys adoption of SFAS No.
151 in the first quarter of fiscal 2006 did not have a significant impact on the Companys results
of operations, financial position or cash flows.
In December 2004, the FASB issued SFAS Statement No. 123 (revised 2004), Share-Based
Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS
No. 95, Statement of Cash Flows. SFAS No. 123(R) requires all share-based payments to employees,
including grants of employee stock options, restricted stock and performance-based shares to be
recognized in the income statement based on their fair values. SFAS No. 123(R) also requires the
benefits of tax deductions in excess of recognized compensation cost to be reported as a financing
cash flow, rather than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash flows in periods
after adoption. In the first quarter of fiscal 2006, the Company adopted SFAS No. 123(R) using the
modified prospective method. Under the modified prospective method, compensation cost will be
recognized for all share-based payments granted after the adoption of SFAS No. 123(R) and for all
awards granted to employees prior to the adoption date of SFAS No. 123R that remain unvested on the
adoption date. Accordingly, no restatements were made to prior periods. The adoption of SFAS No.
123(R) was not significant to the Companys operations or financial position for fiscal 2006.
Prior to adoption of SFAS No. 123(R), the Company accounted for share-based payments to
employees using APB 25s intrinsic value method and, as such, generally recognized no compensation
cost for employee stock options. Under APB 25, the Company recorded unearned compensation in the
shareholders equity section of its balance sheet upon the grant of restricted stock and amortized
the unearned compensation over the vesting period. Based upon the provisions of SFAS No. 123(R),
the Company was required to reverse the previously recorded unearned compensation and to accrue
stock based compensation expense as it is earned.
On July 13, 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109. Interpretation 48 clarifies the accounting
for uncertainty in income taxes recognized in a companys financial statements in accordance with
Statement No. 109 and prescribes a recognition threshold and measurement attribute for financial
statement disclosure of tax positions taken or expected to be taken on a tax return. Additionally,
Interpretation No. 48
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provides guidance on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. Interpretation 48 is effective for fiscal years beginning
after December 15, 2006, with early adoption permitted. The
Company is currently evaluating the impact the
adoption of Interpretation 48 will have on the Companys consolidated financial position, results
of operations and cash flows.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is a purchaser of certain commodities, primarily corn and soybean meal, for use in
manufacturing feed for its chickens. As a result, the Companys earnings are affected by changes in
the price and availability of such feed ingredients. Feed grains are subject to volatile price
changes caused by factors described below that include weather, size of harvest, transportation and
storage costs and the agricultural policies of the United States and foreign governments. The price
fluctuations of feed grains have a direct and material effect on the Companys profitability.
Generally, the Company purchases its corn, soybean meal and other feed ingredients for prompt
delivery to its feed mills at market prices at the time of such purchases. The Company sometimes
will purchase feed ingredients for deferred delivery that typically ranges from one month to twelve
months after the time of purchase. The grain purchases are made directly with our usual grain
suppliers, which are companies in the regular business of supplying grain to end users, and do not
involve options to purchase. Such purchases occur when senior management concludes that market
factors indicate that prices at the time the grain is needed are likely to be higher than current
prices, or where, based on current and expected market prices for the Companys poultry products,
management believes it can purchase feed ingredients at prices that will allow the Company to earn
a reasonable return for its shareholders. Market factors considered by management in determining
whether or not and to what extent to buy grain for deferred delivery include:
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Current market prices;
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Current and predicted weather patterns in the United States, South America, China and
other grain producing areas, as such weather patterns might affect the planting, growing,
harvesting and yield of feed grains;
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The expected size of the harvest of feed grains in the United States and other grain
producing areas of the world as reported by governmental and private sources;
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Current and expected changes to the agricultural policies of the United States and
foreign governments;
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The relative strength of United States currency and expected changes therein as it might
impact the ability of foreign countries to buy United States feed grain commodities;
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The current and expected volumes of export of feed grain commodities as reported by
governmental and private sources;
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The current and expected use of available feed grains for uses other than as livestock
feed grains (such as the use of corn for the production of ethanol, which use is impacted by
the price of crude oil); and
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Current and expected market prices for the Companys poultry products.
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The Company purchases physical grain, not financial instruments such as puts, calls or
straddles that derive their value from the value of physical grain. Thus, the Company does not use
derivative financial instruments as defined by SFAS 133, Accounting for Derivatives for
Instruments and Hedging Activities. The Company does not enter into any derivative transactions or
purchase any grain-related contracts other than the physical grain contracts described above.
The cost of feed grains is recognized in cost of sales, on a first-in-first-out basis, at the
same time that the sales of the chickens that consume the feed grains are recognized.
The Companys interest expense is sensitive to changes in the general level of U.S. interest
rates. The Company maintains certain of its debt as fixed rate in nature to mitigate the impact of
fluctuations in interest rates. The fair value of the Companys fixed rate debt approximates the
carrying amount at July 31, 2006. Management believes the potential effects of near-term changes
in interest rates on the Companys debt is not material.
The Company is a party to no other market risk sensitive instruments requiring disclosure.
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Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Companys Securities Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms,
and that such information is accumulated and communicated to the Companys management, including
its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
An evaluation was performed under the supervision and with the participation of the Companys
management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of the Companys disclosure controls and procedures. Based on that
evaluation, the Companys management, including the Chief Executive Officer and Chief Financial
Officer, concluded that the Companys disclosure controls and procedures were effective as of July
31, 2006. There have been no changes in the Companys internal control over financial reporting
during the fiscal quarter ended July 31, 2006 that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On May 19, 2003, a lawsuit was filed on behalf of 74 individual plaintiffs in the United States
District Court for the Southern District of Mississippi alleging an intentional pattern and
practice of race discrimination and hostile environment in violation of Title VII and Section 1981
rights. This lawsuit alleges that Sanderson Farms, in its capacity as an employer, has engaged
in (and continues to engage in) a pattern and practice of intentional unlawful employment
discrimination and intentional unlawful employment practices at its plants, locations, off-premises
work sites, offices, and facilities in Pike County, Mississippi...in violation of Title VII of the
Civil Rights Act of 1964 (as amended)... . The action further alleges that Sanderson Farms has
willfully, deliberately, intentionally, and with malice deprived black workers in its employ of the
full and equal benefits of all laws in violation of the Civil Rights Act. On June 6, 2003,
thirteen additional plaintiffs joined in the pending lawsuit by the filing of a First Amended
Complaint. This brought the total number of plaintiffs to 87.
The plaintiffs in this lawsuit seek, among other things, back pay and other compensation in the
amount of $500,000 each and unspecified punitive damages. The Company has aggressively defended
the lawsuit and will continue to do so. The Company has a policy of zero tolerance for
discrimination of any type, and preliminarily investigated the complaints alleged in this lawsuit
when they were brought as EEOC charges. This investigation, which is ongoing, has substantiated
none of the complaints alleged in the lawsuit, and the Company believes the charges are without
merit. On July 21, 2003, the Company filed a Motion to Dismiss or, alternatively, Motion for
Summary Judgment or Motion for More Definite Statement. On December 17, 2003, the court entered
its order denying the Companys motion for summary judgment, but granting its motion for more
definite statement. The court also ordered that the union representing some of the plaintiffs be
joined as a defendant. The court gave the plaintiffs until January 26, 2004 to amend their
complaint to more specifically set out their claims. Although the Companys motion to dismiss was
denied, the courts order permits the Company to refile its dispositive motions after the
plaintiffs file an amended complaint. On January 27, 2004, 84 of the 87 plaintiffs filed their
Second Amended Complaint. The remaining three plaintiffs voluntarily dismissed their claims. The
Company filed its answer to the plaintiffs second amended complaint on March 26, 2004, denying any
and all liability and setting forth numerous affirmative defenses. On July 1, 2004, the Company
filed a Motion to Sever Plaintiffs Cases, wherein the Company requested that the court sever the
pending lawsuit with 84 plaintiffs into 84 separate lawsuits, one for each plaintiff. The Company
asserted in its motion that this relief should be granted because the 84 cases are too dissimilar
and were misjoined. The Company further asserted that it would be prejudiced by being subjected to
one common trial for 84 plaintiffs, rather than separate trials for each plaintiff. On August 26,
2004, the Court issued its order severing this case into six separate causes of action, with the
plaintiffs divided into six groups based on their job classifications. On October 12, 2004, the
plaintiffs filed new complaints for each of the six severed cases, which the Company answered on
November 24, 2004. A case management conference for each of the six cases was held on December 28,
2004, during which various procedural issues related to discovery were settled. On September 28,
2005, the Company filed a Motion for a Pre-Trial conference seeking to preclude the plaintiffs from
utilizing a pattern and practice method of proof. This method of proof is typically reserved for
class action cases, or cases brought by the government. The plaintiffs had indicated their
intention to use this method of proof in the pleadings and discovery requests filed up to the date
of the Companys motion. On October 26, 2005, the court entered an order ruling that the
plaintiffs would not be permitted to use the pattern and practice method of proof. Six separate
trials are scheduled during 2006 and 2007 for the plaintiffs causes of actions. Discovery is
complete in the first of the six trials, which is currently set for September 18, 2006.
Three of the six cases or groups of plaintiffs (live-haul drivers, chicken catchers and forklift
drivers) had been originally set for consecutive trials beginning on September 18, 2006. After
discovery for those three cases ended on June 23, 2006, the Court continued the trials for the
chicken catchers and forklift drivers. No trial date for those two cases, or any of the cases
other than the trial for live-drivers on September 18, 2006, has been set. The Company filed
Motions for Summary Judgment on each of the plaintiffs claims on July 7, 2006, in which the
Company asked the Court to rule in its favor in the three cases originally set for trial on
September 18, 2006. The plaintiffs responded to the Motions for Summary Judgment on August 14,
2006, and the Companys Reply
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is due on August 31, 2006. In conjunction with its Motions for Summary Judgment on plaintiffs
claims, the Company filed a Motion for Separate Trials, or in the Alternative, for Further
Severance of Plaintiffs. For the live-haul driver plaintiffs whose claims the Court may allow to
proceed to trial on September 18, 2006, this motion asks the Court to conduct separate trials for
each plaintiff rather than allow the plaintiffs to try all of their claims together at one trial
or, alternatively, to conduct trials with smaller groups of plaintiffs. As it did in its Motion to
Sever previously filed with Court at the beginning of discovery, the Company is asserting in the
motion that it would be prejudiced by being subjected to one common trial, rather than separate
trials for each plaintiff. This motion is currently pending.
On June 6, 2006, Annie Collins, a former employee of the processing division subsidiary, on behalf
of herself and as representative of a class of individuals who are similarly situated and who have
suffered the same or similar damages filed a Complaint against the Companys processing and
production subsidiaries in the United States District Court for the Eastern District of Louisiana.
Since the filing of the Complaint, 1,523 individuals purportedly have given their consent to be a
party plaintiff to this action. Plaintiffs allege that the Companys subsidiaries violated the
Fair Labor Standards Act by failing to pay plaintiffs and other hourly employees for the time spent
donning and doffing protective and sanitary clothing and performing other alleged compensable
activities, and that Sanderson automatically deducted thirty minutes from each workers workday
for a meal break regardless of the actual time spent on break. Plaintiffs also allege that they
were not paid overtime wages at the legal rate. Plaintiffs seek unpaid wages, liquidated damages
and injunctive relief. On July 24, 2006, plaintiffs filed a Motion for Protective Order, Sanctions
and a Corrective Notice related to a letter the Company sent to all employees concerning the
donning and doffing issue. The letter informed employees that, among other things, the Company was
in negotiations with the Department of Labor about any adjustment to its pay practices and its
calculations of any back pay obligations. The Company responded to the plaintiffs motion and
filed a Motion to Stay Proceedings Pending Conciliation Efforts with the Department of Labor. On
July 25, 2006, plaintiffs responded to the Companys motion, which is still pending. On July 31,
2006, the Company filed its Answer to the plaintiffs Complaint.
On July 20, 2006, ten current and former employees of the processing division subsidiary filed an
action nearly identical to the one described above in the United States of District Court for the
Eastern District of Louisiana. No notice that any other employees have given their consent to be a
party plaintiff to this action has been received to date. The Company is attempting to reach an
agreement regarding the claims of all current and former employees through negotiations with the
Department of Labor. Those discussions are currently ongoing. In the meantime, the Company will
vigorously defend the donning and doffing litigation. The Company strongly believes its pay
practices are consistent with applicable state and federal law, and were upheld by the United
States Fifth Circuit Court of Appeals in a case similar to these cases.
The Company is also involved in various other claims and litigation incidental to its business.
Although the outcome of the matters referred to in the preceding sentence cannot be determined with
certainty, management, upon the advice of counsel, is of the opinion that the final outcome should
not have a material effect on the Companys consolidated results of operation or financial
position.
The Company recognizes the costs of legal defense for the legal proceedings to which it is a party
in the periods incurred. A determination of the amount of reserves required, if any, for these
matters is made after considerable analysis of each individual case. Because the outcome of these
cases cannot be determined with any certainty, no estimate of the possible loss or range of loss
resulting from the cases can be made. At this time, the Company has not accrued any reserve for
any of these matters. Future reserves may be required if losses are deemed probable due to changes
in the Companys assumptions, the effectiveness of legal strategies, or other factors beyond the
Companys control. Future results of operations may be materially affected by the creation of or
changes to reserves or by accruals of losses to reflect any adverse determinations of these legal
proceedings.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in the
Companys Form 10-K for the fiscal year ended October 31, 2005.
Item 6. Exhibits
The following exhibits are filed with this report.
Exhibit 3.1 Articles of Incorporation of the Registrant dated October 19, 1978. (Incorporated
by reference to Exhibit 4.1 filed with the registration statement on Form S-8 filed by the
Registrant on July 15, 2002, Registration No. 333-92412.)
Exhibit 3.2 Articles of Amendment, dated March 23, 1987, to the Articles of Incorporation of
the Registrant. (Incorporated by reference to Exhibit 4.2 filed with the registration statement on
Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)
20
Exhibit 3.3 Articles of Amendment, dated April 21, 1989, to the Articles of Incorporation of
the Registrant. (Incorporated by reference to Exhibit 4.3 filed with the registration statement on
Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)
Exhibit 3.4 Certificate of Designations of Series A Junior Participating Preferred Stock of
the Registrant dated April 21, 1989. (Incorporated by reference to Exhibit 4.4 filed with the
registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No.
333-92412.)
Exhibit 3.5 Article of Amendment, dated February 20, 1992, to the Articles of Incorporation of
the Registrant. (Incorporated by reference to Exhibit 4.5 filed with the registration statement on
Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)
Exhibit 3.6 Article of Amendment, dated February 27, 1997, to the Articles of Incorporation of
the Registrant. (Incorporated by reference to Exhibit 4.6 filed with the registration statement on
Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)
Exhibit 3.7 Bylaws of the Registrant, amended and restated as of December 2, 2004.
(Incorporated by reference to Exhibit 3 filed with the Registrants Current Report on Form 8-K on
December 8, 2004.)
Exhibit 10.1* Lease Agreement dated as of July 1, 2006 between Adel Industrial Development
Authority as Lessor, and Sanderson Farms, Inc. (Production Division) as Lessee.
Exhibit 10.2* Bond Purchase Agreement dated as of July 31, 2006 between Sanderson Farms, Inc.
(Production Division) as Purchase and Adel Industrial Development Authority as Issuer.
Exhibit 10.3*+ Sanderson Farms, Inc. and Affiliates Employee Stock Ownership Plan, as amended
and restated effective August 1, 2006.
Exhibit 15* Accountants Letter re: Unaudited Financial Information.
Exhibit 31.1* Certification of Chief Executive Officer.
Exhibit 31.2* Certification of Chief Financial Officer.
Exhibit 32.1** Section 1350 Certification.
Exhibit 32.2** Section 1350 Certification.
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|
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*
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Filed herewith.
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+
|
|
Management contract or compensatory plan or arrangement.
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|
**
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|
Furnished herewith.
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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.
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SANDERSON FARMS, INC.
(Registrant)
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Date: August 29, 2006
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By:
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/s/ D. Michael Cockrell
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Treasurer and Chief
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Financial Officer
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|
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Date: August 29, 2006
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By:
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/s/ James A. Grimes
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Secretary and Principal
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Accounting Officer
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22
INDEX TO EXHIBITS
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|
|
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Exhibit
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|
|
Number
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Description of Exhibit
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3.1
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|
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Articles of Incorporation of the Registrant dated October 19,
1978. (Incorporated by reference to Exhibit 4.1 filed with the
registration statement on Form S-8 filed by the Registrant on July
15, 2002, Registration No. 333-92412.)
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|
|
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3.2
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Articles of Amendment, dated March 23, 1987, to the Articles of
Incorporation of the Registrant. (Incorporated by reference to
Exhibit 4.2 filed with the registration statement on Form S-8
filed by the Registrant on July 15, 2002, Registration No.
333-92412.)
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|
|
|
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3.3
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|
|
Articles of Amendment, dated April 21, 1989, to the Articles of
Incorporation of the Registrant. (Incorporated by reference to
Exhibit 4.3 filed with the registration statement on Form S-8
filed by the Registrant on July 15, 2002, Registration No.
333-92412.)
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|
|
|
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3.4
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|
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Certificate of Designations of Series A Junior Participating
Preferred Stock of the Registrant dated April 21, 1989.
(Incorporated by reference to Exhibit 4.4 filed with the
registration statement on Form S-8 filed by the Registrant on July
15, 2002, Registration No. 333-92412.)
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|
|
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3.5
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|
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Article of Amendment, dated February 20, 1992, to the Articles of
Incorporation of the Registrant. (Incorporated by reference to
Exhibit 4.5 filed with the registration statement on Form S-8
filed by the Registrant on July 15, 2002, Registration No.
333-92412.)
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3.6
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|
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Article of Amendment, dated February 27, 1997, to the Articles of
Incorporation of the Registrant. (Incorporated by reference to
Exhibit 4.6 filed with the registration statement on Form S-8
filed by the Registrant on July 15, 2002, Registration No.
333-92412.)
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|
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3.7
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|
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Bylaws of the Registrant amended and restated as of December 2,
2004. (Incorporated by reference to Exhibit 3 filed with the
Registrants Current Report on Form 8-K on December 8, 2004.)
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10.1*
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|
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Lease Agreement dated as of July 1, 2006 between Adel Industrial
Development Authority as Lessor, and Sanderson Farms, Inc.
(Production Division) as Lessee.
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10.2*
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Bond Purchase Agreement dated as of July 1, 2006 between Sanderson
Farms, Inc. (Production Division) as Purchaser and Adel Industrial
Development Authority as Issuer.
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10.3*+
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|
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Sanderson Farms. Inc. and Affiliates Employee Stock Ownership
Plan, as amended and restated effective August 1, 2006
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|
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15*
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Accountants Letter re: Unaudited Financial Information.
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31.1*
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Certification of Chief Executive Officer
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31.2*
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Certification of Chief Financial Officer
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32.1**
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Section 1350 Certification.
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32.2**
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Section 1350 Certification.
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*
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Filed herewith.
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|
**
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Furnished herewith.
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+
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Management contract or compensatory plan or arrangement.
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23
EXHIBIT
10.1
This Lease Agreement has been executed in several counterparts. No assignments of an
ownership or security interest this Lease Agreement may be made other than by transfer of
counterpart number 1.
Adel Industrial Development Authority
(a public body corporate and politic created and existing
under the laws of the State of Georgia)
as Lessor
And
Sanderson Farms, Inc. (Production Division)
(a Mississippi corporation)
as Lessee
Lease Agreement
The rights and interest of the Adel Industrial Development Authority in this Lease Agreement
and the revenues and receipts derived therefrom, except for its Unassigned Rights, as defined
herein, have been assigned and are the subject of a grant of a security interest to the Bondholder
under a Bond Purchase Agreement dated as of even date herewith.
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|
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State of Georgia
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)
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Cook County
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)
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Parties and Recitals
This
Lease Agreement
, dated as of July 1, 2006, by and between the
Adel
Industrial Development Authority
, a public body corporate and politic created and existing
under the laws of the State of Georgia (the Lessor), party of the first part, and
Sanderson
Farms, Inc. (Production Division)
, a duly organized and validly existing Mississippi
corporation (the Lessee), party of the second part;
W
i
t
n
e
s
s
e
t
h
:
In consideration of
the respective representations and agreements hereinafter contained,
the parties hereto agree as follows, provided, that in the performance of the agreements of the
Lessor herein contained, any obligation it may thereby incur for the payment of money shall not
constitute a general obligation of the Lessor but shall be payable solely out of the rents,
revenues, receipts, and other payments derived from this Lease, and the Bonds (as hereinafter
defined) shall not constitute a general obligation of the Lessor nor constitute an indebtedness or
general obligation of the State of Georgia or any other agency or political subdivision of the
State of Georgia, within the meaning of any constitutional or statutory provision whatsoever:
Definitions and Other Provisions of General Application
Section 1.01.
Definitions
. Certain words and terms used in this Lease are defined
herein. When used herein, such words and terms shall have the meanings given to them by the
language employed in this Article I defining such words and terms, unless the context clearly
indicates otherwise. In addition to the words and terms defined elsewhere herein, the following
words and terms are defined terms under this Lease:
Act
means an act titled Development Authorities Law, codified as Chapter 62 of Title 36 of
the Official Code of Georgia Annotated, as amended, as the same may be from time to time
supplemented and amended.
Additional Rent
means the rent payable by the Lessee to the Lessor, described under the
subheading Additional Rent in Section 5.03 of this Lease.
Additions or Alterations
means modifications, improvements, alterations, additions,
enlargements, or expansions in, on, or to the Project.
Authorized Lessee Representative
means the person at the time designated to act on behalf of
the Lessee by written certificate furnished to the Lessor and the Depositary, containing the
specimen signature of such person and signed on behalf of the Lessee by the President or a Vice
President of the Lessee. Such certificate or any subsequent or supplemental certificate so
executed may designate an alternate or alternates.
Basic Rent
means the rent payable by the Lessee to the Lessor, described under the
subheading Basic Rent in Section 5.03 of this Lease.
Bond Documents
means, collectively, this Lease, the Bond Resolution, and the Bond Purchase
Agreement.
Bondholder
means the Persons in whose name the Bonds are registered on the registration
books of the Lessor, which initially shall be the Purchaser.
Bond Purchase Agreement
means the Bond Purchase Agreement, dated as of even date herewith,
between the Lessor and the Purchaser, under the terms of which the Lessor agreed to issue and sell
the Bonds to the Purchaser and the Purchaser agreed to purchase the Bonds from the Lessor, and the
Lessor assigned, pledged, and granted a first priority security interest in the Bond Rent as
security for the payment of principal of, and premium, if any, and interest on, the Bonds. The
term Bond Purchase Agreement shall include any amendments or supplements thereto.
Bond Rent
means all the Lessors right, title, interest, remedies, powers, options,
benefits, and privileges in, to, and under this Lease (reserving, however, to the Lessor the
Unassigned Rights, as defined herein) and all amounts due and to become due to the Lessor under and
pursuant to this Lease.
-2-
Bond Resolution
means the resolution or resolutions adopted by the Governing Body of the
Lessor authorizing the issuance and sale of the Bonds and the security therefor.
Bonds
means the revenue Bonds designated Adel Industrial Development Authority Revenue
Bonds (Sanderson Farms, Inc. (Production Division) Project), Series 2006, to be dated as of even
date herewith, in the aggregate principal amount of $17,200,000, to be issued pursuant to the Bond
Purchase Agreement, and any Bond issued in substitution or exchange therefor.
Building
means those certain buildings and all other fixtures, structures, and improvements
that are, or will be, constructed or installed on the Leased Premises in accordance with this
Lease.
Completion Date
means the date of substantial completion of the acquisition, construction,
equipping, and installation of a Project, as that date shall be certified as provided in Section
4.06.
Construction Contracts
means the contracts among the Lessor, the Lessee, and the general
contractor for the construction and installation of the Building and the contracts among the
Lessor, the Lessee, and suppliers for the acquisition of the Leased Equipment.
Construction Period
means the period between the beginning of construction and installation
of the Building and the Completion Date.
Consulting Architect
means the architect or architectural firm at the time employed by the
Lessee and designated to act on behalf of the Lessor by written certificate furnished to the
Bondholder, containing the signature of such person or the signature of a partner or officer of
such firm, and signed on behalf of the Lessor by the Chairman of the Lessor. The Consulting
Architect shall be registered and qualified to practice architecture under the laws of the State
and shall not be an employee of the Lessor or the Lessee.
Costs of the Project
means those costs and expenses paid or incurred in connection with the
acquisition, construction, equipping, and installation of the Project and permitted by Section 4.03
to be paid or reimbursed from Bond proceeds.
County
means Cook County, Georgia.
Depositary
means initially the Company, and its successors and assigns, or any successor
depositary for the Project Fund hereafter appointed by the Lessor at the direction of the Lessee.
Environmental Laws
means all federal, state, and local laws, rules, regulations, ordinances,
programs, permits, guidances, orders, and consent decrees relating to health, safety, and
environmental matters, including, but not limited to, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, the Toxic Substances Control Act, as amended,
the Resource Conservation and Recovery Act, as amended, the Clean Water Act, as amended, the Clean
Air Act, as amended, the Superfund Amendments and
-3-
Reauthorization Act of 1986, as amended, state and federal superlien and environmental cleanup
programs and laws, and U.S. Department of Transportation regulations.
Event of Default
means the events specified in Section 10.01 of this Lease.
Governing Body
means, as to the Lessor, the members of the Lessor acting as its board of
directors.
Government Obligations
means direct general obligations of the United States of America
(including obligations issued or held in book-entry form on the books of the Department of Treasury
of the United States of America) or obligations the payment of the principal of and interest on
which when due are fully and unconditionally guaranteed by the United States of America.
Gross Rent
means the Basic Rent and the Additional Rent, as well any other amounts payable
under Section 5.03.
Independent Counsel
means an attorney or firm of attorneys duly admitted to practice law
before the highest court of any state of the United States and not in the full-time employment of
the Lessor or the Lessee.
Lease
means the within Lease Agreement between the Lessor and the Lessee, as the same may be
amended from time to time in accordance with the provisions hereof.
Leased Equipment
means the fixtures, trade fixtures, equipment, machinery, and other
personal property described in Exhibit B attached hereto which, by this reference thereto, is
incorporated herein, and all replacements, substitutions, and additions thereto.
Leased Premises
means the real estate described in Exhibit A attached hereto which, by this
reference thereto, is incorporated herein.
Lease Term
means the duration of the leasehold estate created under this Lease as specified
in Section 5.01.
Lessee
means Sanderson Farms, Inc. (Production Division), a duly organized, existing, and in
good standing under and by virtue of the laws of the State of Mississippi, the party of the second
part hereto, and its successors and assigns.
Lessee Contracts
means, collectively, this Lease and the PILOT Agreement.
Lessor
means the Adel Industrial Development Authority, a public body corporate and politic
created and existing under the laws of the State, and its successors and assigns.
Lessor Contracts
means, collectively, this Lease, the PILOT Agreement, and the Bond Purchase
Agreement.
Net Proceeds,
when used with respect to any insurance or condemnation award or with respect
to any other recovery on a contractual claim or claim for damage to or for taking of
-4-
property, means the gross proceeds from the insurance or condemnation award or recovery with
respect to which that term is used remaining after payment of all costs and expenses (including
reasonable and actual attorneys fees) incurred in the collection of such gross proceeds.
Permitted Encumbrances
means all encumbrances on any portion of the Project on the date
Lessor acquires title thereto, encumbrances to which the Lessee has consented or which the Lessor
has granted, and vendors, mechanics, and materialmens liens arising from the acquisition,
construction, and equipping of the Project, or the repair, replacement, or renovation of the
Project, or any part thereof, but any such venders, mechanics, or materialmens liens must be
discharged prior to any foreclosure thereof.
Permitted Investments
means any of the following classes of securities, to the extent to
which investment in such securities is permitted under State law:
(1) the local government investment pool created in Chapter 83 of Title 36 of the Official
Code of Georgia Annotated;
(2) bonds or obligations of the Lessor or bonds or obligations of the State or other counties,
municipal corporations, and political subdivisions of the State;
(3) bonds or other obligations of the United States or of subsidiary corporations of the
United States government which are fully guaranteed by such government;
(4) obligations of agencies of the United States government issued by the Federal Land Bank,
the Federal Home Loan Bank, the Federal Intermediate Credit Bank, or the Central Bank for
Cooperatives;
(5) bonds or other obligations issued by any public housing agency or municipal corporation in
the United States, which bonds or obligations are fully secured as to the payment of both principal
and interest by a pledge of annual contributions under an annual contributions contract or
contracts with the United States government, or project Bonds issued by any public housing agency,
urban renewal agency, or municipal corporation in the United States which are fully secured as to
payment of both principal and interest by a requisition, loan, or payment agreement with the United
States government;
(6) securities of or other interests in any no-load, open-end management type investment
company or investment trust registered under the Investment Company Act of 1940, as from time to
time amended, or any common trust fund maintained by any bank or trust company which holds such
proceeds as trustee or by an affiliate thereof so long as:
(A) the portfolio of such investment company or investment trust or common trust fund
is limited to the obligations described in clause (3) above and repurchase agreements fully
collateralized by any such obligations;
(B) such investment company or investment trust or common trust fund takes delivery of
such collateral either directly or through an authorized custodian;
-5-
(C) such investment company or investment trust or common trust fund is managed so as
to maintain its shares at a constant net asset value; and
(D) securities of or other interests in such investment company or investment trust or
common trust fund are purchased and redeemed only through the use of national or state banks
having corporate trust powers and located within the State; and
(7) certificates of deposit of national or state banks located within the State that have
deposits insured by the Federal Deposit Insurance Corporation and certificates of deposit of
federal savings and loan associations and state building and loan or savings and loan associations
located within the State that have deposits insured by the Savings Association Insurance Fund of
the Federal Deposit Insurance Corporation or the Georgia Credit Union Deposit Insurance
Corporation, including the certificates of deposit of any bank, savings and loan association, or
building and loan association acting as depository, custodian, or trustee for any such Bond
proceeds.
The portion of the certificates of deposit described in clause (7) above in excess of the
amount insured by the Federal Deposit Insurance Corporation, the Savings Association Insurance Fund
of the Federal Deposit Insurance Corporation, or the Georgia Credit Union Deposit Insurance
Corporation, if any, must be secured by deposit, with the Federal Reserve Bank of Atlanta, Georgia,
or with any national or state bank or federal savings and loan association or state building and
loan or savings and loan association located within the State, of one or more of the following
securities in an aggregate principal amount equal at least to the amount of such excess: direct and
general obligations of the State or of any county or municipal corporation in the State,
obligations of the United States or subsidiary corporations described in clause (3) above,
obligations of the agencies of the United States government described in clause (4) above, or
bonds, obligations, or project notes of public housing agencies, urban renewal agencies, or
municipalities described in clause (5) above.
Person
means natural persons, firms, joint ventures, associations, trusts, partnerships,
corporations, and public bodies.
PILOT Agreement
means the PILOT Agreement, dated as of even date herewith, between the
Lessor, the Lessee, and Cook County, Georgia.
Plans and Specifications
means the detailed plans and specifications for the construction,
equipping, and installation of the Building prepared by the Consulting Architect or by architects
and engineers acceptable to the Consulting Architect, as amended from time to time by the Lessee, a
copy of which are or will be on file with the Lessor.
Project
means, collectively, the Leased Premises, the Building, and the Leased Equipment,
the collective cost of which shall be not less than $17,200,000. The Lessee may designate
subsequent Projects by delivery of a notice to that effect to the Lessor and the Purchaser
describing such Project in detail.
Project Fund
means the fund created in Section 5.1 of the Bond Purchase Agreement and
referred to herein.
-6-
Purchaser
means Sanderson Farms, Inc. (Production Division), a Mississippi corporation.
Security
means the Bond Rent and any and all property subject to the pledge and grant of
security interest contained in the Bond Purchase Agreement.
State
means the State of Georgia.
Unassigned Rights
means all of the rights of the Lessor to receive reimbursements and
payments pursuant to Sections 6.07, 8.06, and 10.04, and to be held harmless and indemnified
pursuant to Section 8.06.
Section 1.02.
Construction of Certain Terms
. For all purposes of this Lease, except
as otherwise expressly provided or unless the context otherwise requires, the following rules of
construction shall apply:
|
(1)
|
|
The use of the masculine, feminine, or neuter gender is for convenience only
and shall be deemed and construed to include correlative words of the masculine,
feminine, or neuter gender, as appropriate.
|
|
|
(2)
|
|
This Lease means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more leases supplemental hereto
entered into pursuant to the applicable provisions hereof.
|
|
|
(3)
|
|
All references in this instrument to designated Articles, Sections, and
other subdivisions are to the designated articles, sections, and other subdivisions of
this instrument. The words herein, hereof, and hereunder and other words of
similar import refer to this Lease as a whole and not to any particular article,
section, or other subdivision.
|
|
|
(4)
|
|
All words used herein in the singular or plural shall be deemed to have been
used in the plural or singular where the context or construction so requires. The
terms defined in this Article shall have the meanings assigned to them in this Article
and include the plural as well as the singular.
|
|
|
(5)
|
|
All accounting terms not otherwise defined herein have the meanings assigned to
them in accordance with generally accepted accounting principles as promulgated by the
American Institute of Certified Public Accountants, on and as of the date of this
instrument.
|
|
|
(6)
|
|
Or is not exclusive.
|
|
|
(7)
|
|
The words herein, hereof, hereto, hereby, and hereunder and other
words of similar import refer to this Lease as a whole and not to any particular
Article, Section, or other subdivision.
|
|
|
(8)
|
|
The term hereafter shall mean after, and the term heretofore shall mean
before, the date of execution and delivery of this Lease.
|
-7-
Section 1.03.
Table of Contents; Titles and Headings
. The table of contents, the
titles of the articles, and the headings of the sections of this Lease are solely for convenience
of reference, are not a part of this Lease, and shall not be deemed to affect the meaning,
construction, or effect of any of its provisions.
Section 1.04.
Contents of Certificates or Opinions
. Every certificate or opinion
with respect to the compliance with a condition or covenant provided for in this Lease shall
include: (i) a statement that the person or persons making or giving such certificate or opinion
have read such covenant or condition and the definitions herein relating thereto, (ii) a brief
statement as to the nature and scope of the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are based, (iii) a statement that, in the
opinion of the signers, they have made or caused to be made such examination or investigation as is
necessary to enable them to express an informed opinion as to whether or not such covenant or
condition has been complied with, and (iv) a statement as to whether, in the opinion of the
signers, such condition or covenant has been complied with.
Any such certificate or opinion made or given by an officer of the Lessor or the Lessee may be
based, insofar as it relates to legal or accounting matters, upon a certificate or an opinion of
counsel or an accountant, which certificate or opinion has been given only after due inquiry of the
relevant facts and circumstances, unless such officer knows that the certificate or opinion with
respect to the matters upon which his certificate or opinion may be based is erroneous or in the
exercise of reasonable care should have known that the same was erroneous. Any such certificate or
opinion made or given by counsel or an accountant may be based (insofar as it relates to factual
matters with respect to information which is in the possession of an officer of the Lessor or the
Lessee or any third party) upon the certificate or opinion of or representations by an official of
the Lessor or the Lessee or any third party on whom counsel or an accountant could reasonably rely
unless such counsel or such accountant knows that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion may be based as aforesaid are
erroneous or in the exercise of reasonable care should have known that the same were erroneous.
The same officer of the Lessor or the Lessee, or the same counsel or accountant, as the case may
be, need not certify to or render an opinion as all of the matters required to be certified or
cover by an opinion under any provision of this Lease, but different officers, counsel, or
accountants may certify or cover by an opinion as to different matters, respectively.
[End of Article I]
-8-
REPRESENTATIONS AND UNDERTAKINGS
Section 2.01.
Representations by the Lessor
. The Lessor makes the following
representations and warranties as the basis for the undertakings on its part herein contained:
(a)
Creation and Authority
. The Lessor is a public body corporate and politic duly
created and validly existing under the laws of the State. The Lessor has all requisite power and
authority under the Act and the laws of the State (1) to issue the Bonds, (2) to acquire,
construct, equip, and install the Project and to lease the Project to the Lessee, and (3) to enter
into, perform its obligations under, and exercise its rights under this Lease. The Act authorizes
the Lessor to borrow money and to issue its obligations and to use the proceeds thereof for the
purpose of paying all or part of the cost of any project, which includes buildings or structures
to be used in the production, manufacturing, processing, assembling, storing, or handling of any
manufactured product, including the cost of extending, adding to, or improving the project, to
otherwise carry out the purposes of the Act, and to pay all other costs of the Lessor incident to
or necessary and appropriate to such purposes, including the providing of funds to be paid into any
fund or funds to secure such bonds. The Act authorizes the Lessor to construct, acquire, own,
repair, remodel, maintain, extend, improve, and equip projects located on land owned by the Lessor
and to lease and grant options for any real or personal property or interest therein. The Act also
authorizes the Lessor as security for repayment of its obligations, to pledge, convey, assign,
hypothecate, or otherwise encumber any property, real or personal, of the Lessor and to execute any
trust agreement, indenture, or security agreement containing any provisions not in conflict with
law. The Lessor has found that the Project constitutes a project within the meaning of that term
as defined in the Act, has found that the Project will develop and promote trade, commerce,
industry, and employment opportunities for the public good and the general welfare, will promote
the general welfare of the State, and will increase or maintain employment in the territorial area
of the Lessor, and has found that the Project is for the lawful and valid public purposes set forth
in the Act.
(b)
Pending Litigation
. Except as set forth on Schedule A hereto, there are no
actions, suits, proceedings, inquiries, or investigations pending or, to the knowledge of the
Lessor, after making due inquiry with respect thereto, threatened against or affecting the Lessor
in any court or by or before any governmental authority or arbitration board or tribunal, which
involve the possibility of materially and adversely affecting the transactions contemplated by this
Lease or which, in any way, would adversely affect the validity or enforceability of the Bonds, the
Lessor Contracts, or any agreement or instrument to which the Lessor is a party and which is used
or contemplated for use in the consummation of the transactions contemplated hereby or thereby, nor
is the Lessor aware of any facts or circumstances presently existing which would form the basis for
any such actions, suits, proceedings, inquiries, or investigations.
(c)
Transactions Are Legal and Authorized
. The issue and sale of the Bonds, the
execution and delivery by the Lessor of the Lessor Contracts, and the compliance by the Lessor with
all of the provisions of each thereof, (i) are within the purposes, powers, and authority of the
Lessor, (ii) have been done in full compliance with the provisions of the Act and have been
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approved by the Lessor and are legal and will not conflict with or constitute on the part of
the Lessor a violation of or a breach of or a default under, or result in the creation or
imposition of any lien, charge, restriction, or encumbrance upon any property of the Lessor under
the provisions of, any charter instrument, bylaw, indenture, mortgage, deed to secure debt, pledge,
note, lease, loan, or installment sale agreement, contract, or other agreement or instrument to
which the Lessor is a party or by which the Lessor or its properties are otherwise subject or
bound, or any license, judgment, decree, law, statute, order, writ, injunction, demand, rule, or
regulation of any court or governmental agency or body having jurisdiction over the Lessor or any
of its activities or properties, and (iii) have been duly authorized by all necessary action on the
part of the Lessor.
(d)
Governmental Consents
. Neither the nature of the Lessor nor any of its activities
or properties, nor any relationship between the Lessor and any other Person, nor any circumstance
in connection with the offer, issue, sale, or delivery of the Bonds is such as to require the
consent, approval, permission, order, license, or authorization of, or the filing, registration, or
qualification with, any governmental authority on the part of the Lessor in connection with the
execution, delivery, and performance of the Lessor Contracts, the consummation of any transaction
therein contemplated, or the offer, issue, sale, or delivery of the Bonds, except as shall have
been obtained or made and as are in full force and effect.
(e)
No Defaults
. To the knowledge of the Lessor, after making due inquiry with
respect thereto, no event has occurred and no condition exists which would constitute an event of
default under this Lease or the Bond Purchase Agreement, or which, with the lapse of time or with
the giving of notice or both, would become an event of default. To the knowledge of the Lessor,
after making due inquiry with respect thereto, the Lessor is not in default or violation in any
material respect under the Act or under any charter instrument, bylaw, or other agreement or
instrument to which it is a party or by which it may be bound.
(f)
No Prior Pledge
. Neither the Lessor Contracts, the Project, nor any of the
payments or amounts to be received by the Lessor under the Lessor Contracts or with respect to the
Project have been or will be mortgaged, pledged, or hypothecated in any manner or for any purpose
or have been or will be the subject of a grant of a security interest by the Lessor other than as
provided in the Bond Purchase Agreement as security for the payment of the Bonds.
(g)
Disclosure
. The representations of the Lessor contained in this Lease and any
certificate, document, written statement, or other instrument furnished to the Purchaser by or on
behalf of the Lessor in connection with the transactions contemplated hereby do not contain any
untrue statement of a material fact relating to the Lessor and do not omit to state a material fact
relating to the Lessor necessary in order to make the statements contained herein and therein
relating to the Lessor not misleading. Nothing has come to the attention of the Lessor which would
materially and adversely affect or in the future may (so far as the Lessor can now reasonably
foresee) materially and adversely affect the Project by the Lessor and the Lessee or any other
transactions contemplated by the Bond Documents which has not been set forth in writing to the
Purchaser or in the certificates, documents, and instruments furnished to the Purchaser by or on
behalf of the Lessor prior to the date of execution of this Lease in connection with the
transactions contemplated hereby.
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(h)
Compliance with Conditions Precedent to the Issuance of the Bonds
. All acts,
conditions, and things required to exist, happen, and be performed precedent to and in the
execution and delivery by the Lessor of the Bonds do exist, have happened, and have been performed
in due time, form, and manner as required by law; the issuance of the Bonds, together with all
other obligations of the Lessor, do not exceed or violate any constitutional or statutory
limitation.
Section 2.02.
Representations by the Lessee
. The Lessee makes the following
representations and warranties as the basis for the undertakings on its part herein contained:
(a)
Organization and Power
. The Lessee is a corporation duly organized, validly
existing, and in good standing under and by virtue of the laws of the State of Mississippi is duly
qualified to transact business in the State, and has all requisite power and authority to lease the
Project from the Lessor and to enter into, perform its obligations under, and exercise its rights
under this Lease.
(b)
Pending Litigation and Taxes
. There are no actions, suits, proceedings,
inquiries, or investigations pending or, to the knowledge of the Lessee, after making due inquiry
with respect thereto, threatened against or affecting the Lessee in any court or by or before any
governmental authority or arbitration board or tribunal, which involve the possibility of
materially and adversely affecting the properties, business, prospects, profits, operations, or
condition (financial or otherwise) of the Lessee, or the ability of the Lessee to perform its
obligations under this Lease or the transactions contemplated by this Lease or which, in any way,
would adversely affect the validity or enforceability of this Lease or any agreement or instrument
to which the Lessee is a party and which is used or contemplated for use in the consummation of the
transactions contemplated hereby or thereby, nor is the Lessee aware of any facts or circumstances
presently existing which would form the basis for any such actions, suits, proceedings, inquiries,
or investigations. The Lessee is not in default with respect to any judgment, order, writ,
injunction, decree, demand, rule, or regulation of any court, governmental authority, or
arbitration board or tribunal. All tax returns (federal, state, and local) required to be filed by
or on behalf of the Lessee have been duly filed, and all taxes, assessments, and other governmental
charges shown thereon to be due, including interest and penalties, except such, if any, as are
being actively contested by the lessee in good faith, have been paid or adequate reserves have been
made for the payment thereof.
(c)
Agreements Are Legal and Authorized
. The execution and delivery by the Lessee of
this Lease, the consummation of the transactions herein contemplated, and the fulfillment of or the
compliance with all of the provisions hereof (i) are within the power, legal right, and authority
of the Lessee, and (ii) are legal and will not conflict with or constitute on the part of the
Lessee a violation of or a breach of or a default under, or result in the creation or imposition of
any lien, charge, restriction, or encumbrance upon an property of the Lessee under the provisions
of, any organic document, indenture, mortgage, deed to secure debt, pledge, Bond, lease, loan, or
installment sale agreement, contract, or other agreement or instrument to which the Lessee is a
party or by which the Lessee or its properties are otherwise subject or bound, or any license, law,
statute, rule, regulation, judgment, order, writ, injunction, decree, or demand of any court or
governmental agency or body having jurisdiction over the Lessee or any of its activities or
properties, and (iii) have been duly authorized by all necessary and appropriate corporate action
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on the part of the Lessee. This Lease is the valid, legal, binding, and enforceable
obligation of the Lessee. The officers of the Lessee executing this Lease are duly and properly in
office and are fully authorized and empowered to execute the same for and on behalf of the Lessee.
(d)
Governmental Consents
. To the knowledge of the Lessee, no circumstances in
connection with the execution, delivery, and performance by the Lessee of its obligations under
this Lease or the offer, issue, sale, or delivery by the Lessor of the Bonds are such as to require
the consent, approval, permission, order, license, or authorization of, or the filing,
registration, or qualification with, any governmental authority on the part of the Lessee in
connection with the execution, delivery, and performance of this Lease, the consummation of any
transaction herein contemplated, or the offer, issue, sale, or delivery of the Bonds, except as
shall have been obtained or made and as are in full force and effect and except as are not
presently obtainable. To the knowledge of the Lessee, after making due inquiry with respect
thereto, the Lessee will be able to obtain all such additional consents, approvals, permissions,
orders, licenses, or authorizations of governmental authorities as may be required on or prior to
the date the Lessee is legally required to obtain the same in connection with the performance of
its obligations under this Lease.
(e)
No Defaults
. No event has occurred and no condition exists that would constitute
an Event of Default or which, with the lapse of time or with the giving of notice or both, would
become an Event of Default. To the knowledge of the Lessee, after making due inquiry with respect
thereto, the Lessee is not in default or violation in any material respect under any organic
document or other agreement or instrument to which it is a party or by which it may be bound.
(f)
Compliance with Law
. Except as disclosed in writing from the Lessee to the
Lessor, to the knowledge of the Lessee, after making due inquiry with respect thereto, the Lessee
is not in violation of any laws, ordinances, or governmental rules or regulations (including,
without limitation, all Environmental Laws) to which it or its properties are subject and has not
failed to obtain any licenses, permits, franchises, or other governmental authorizations (which are
presently obtainable) necessary to the ownership of its properties or to the conduct of its
business, which violation or failure to obtain might materially and adversely affect the business,
prospects, profits, and financial condition of the Lessee, and there have been no citations,
notices, or orders of noncompliance issued to the Lessee under any such law, ordinance, rule, or
regulation.
(g)
Restrictions on the Lessee
. The Lessee is not a party to or bound by any
contract, instrument, or agreement, or subject to any other restriction, that materially and
adversely affects its business, properties, assets, operations, or condition (financial or
otherwise). The Lessee is not a party to any contract or agreement that restricts the right or
ability of the Lessee to incur indebtedness for borrowed money or to enter into long-term leases.
(h)
Disclosure
. The representations of the Lessee contained in this Lease and any
certificate, document, written statement, or other instrument furnished by or on behalf of the
Lessee to the Lessor in connection with the transactions contemplated hereby, do not contain any
untrue statement of a material fact and do not omit to state a material fact necessary to make the
statements contained herein or therein not misleading. There is no fact that the Lessee has not
disclosed to the Lessor in writing that materially and adversely affects or in the future may (so
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far as the Lessee can now reasonably foresee) materially and adversely affect the acquisition,
construction, equipping, or installation of the Project or the ability of the Lessee to perform its
obligations under this Lease or any of the documents or transactions contemplated hereby or thereby
or any other transactions contemplated by this Lease which has not been set forth in writing to the
Lessor or in the certificates, documents, and instruments furnished to the Lessor by or on behalf
of the Lessee prior to the date of execution of this Lease in connection with the transactions
contemplated hereby.
(i)
Undertakings Required by the Act
. The issuance of the Bonds by the Lessor for the
benefit of the Lessee and the acquisition, construction, equipping, and installation of the Project
for lease to the Lessee has induced the Lessee to lease the Project from the Lessor to develop and
promote trade, commerce, industry, and employment opportunities for the public good and the general
welfare, to promote the general welfare of the State, and to increase or maintain employment in the
territorial area of the Lessor, all to the public benefit and good.
(j)
Compliance
. The Lessee will comply, in all material respects, with all applicable
laws, regulations, and orders pertaining to the operation of the Project as contemplated by this
Lease, such compliance to include, without limitation, paying and discharging, as the same may
become due and payable, all taxes, assessments, and other governmental charges or levies against or
on any of its property, as well as claims of any kind which, if unpaid, might become a lien upon
any of its properties, except those laws, regulations, and orders, the non-compliance of which
would not have a material adverse effect upon the ability of the Lessee to perform its obligations
under this Lease; provided, however, that the foregoing shall not require the Lessee to comply with
any such law, regulation, or order so long as it in good faith shall contest the validity thereof
and shall, with respect to the payment of any such tax, assessment, charge, levy, or lien, in
accordance with generally accepted accounting principles, set aside and maintain on its books
adequate reserves with respect thereto.
[End of Article II]
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DEMISING CLAUSE; SECURITY; TITLE
Section 3.01.
Demise of the Project
. The Lessor hereby demises and leases to the
Lessee, and the Lessee hereby leases from the Lessor, the Project at the Gross Rent and for the
Lease Term and in accordance with the provisions of this Lease. Nothing in this Lease shall be
construed to require the Lessor to operate the Project other than as lessor.
Section 3.02.
Security for Payments under the Bonds
. As security for the payment of
the Bonds, the Lessor has executed and delivered the Bond Purchase Agreement. The Lessee hereby
consents to the assignment and grant of a first priority security interest made in the Bond
Purchase Agreement, and hereby agrees that its obligations to make all payments under this Lease
shall be absolute and shall not be subject to any defense, except payment, or to any right of
setoff, counterclaim, or recoupment arising out of any breach by the Lessor of any obligation to
the Lessee, whether hereunder or otherwise, or arising out of any indebtedness or liability at any
time owing to the Lessee by the Lessor. The Lessee further agrees that all payments of rent
required to be made under this Lease, except for those arising out of Unassigned Rights, shall be
paid directly to the Bondholder for the account of the Lessor. The Bondholder shall have all
rights and remedies herein accorded to the Lessor (except for Unassigned Rights), and any reference
herein to the Lessor shall be deemed, with the necessary changes in detail, to include the
Bondholder, and the Bondholder is deemed to be and is a third party beneficiary of the
representations, covenants, and agreements of the Lessee herein contained.
Section 3.03.
Warranty of Title
. The Lessor warrants that (a) it has acquired good
and marketable fee simple title to the Leased Premises, and (b) it will be the legal owner of all
Leased Equipment and the Building and will have good and merchantable title to the Leased
Equipment.
[End of Article III]
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ACQUISITION AND CONSTRUCTION OF THE PROJECT;
ISSUANCE OF THE BONDS; FUNDS
Section 4.01.
Agreement to Acquire, Construct, Equip, and Install the Project
.
Promptly following the issuance and sale of the Bonds, the Lessor will acquire the Leased Premises;
acquire, construct, equip, and install the Building; and acquire and install therein the Leased
Equipment. The Lessor hereby authorizes the Lessee to, on its behalf and as its agent, acquire,
construct, equip, and install the Project. The Lessee agrees (i) that it will exercise the
foregoing authorizations given to it by the Lessor, (ii) that the Project will be acquired or
leased and constructed and installed, without material deviation from the Plans and Specifications,
and (iii) that it will cause the Leased Equipment to be acquired or leased in the name of the
Lessor. The Lessor will enter into, or accept the assignment of, such contracts as the Lessee may
request in order to effectuate the purposes of this Section. The Lessor will not execute any
contract or give any order for the acquisition, construction, equip, or installation of any portion
of the Project unless and until the Lessee shall have approved the same in writing and advanced the
funds necessary to carry out such contract or order pursuant to Section 4.03. The Lessor shall not
be required to enter into any lease of Leased Equipment or any other contract providing for the
payment of money unless its liability under such lease or contract is limited to amounts on deposit
in the Project Fund or payments received from the Lessee.
The Lessee further agrees that it will, at all times during the construction of the Project,
maintain or cause the general contractor to maintain in full force and effect Builders Risk -
Completed Value Form insurance insuring the Building against fire, lightning, and all other risks
covered by the extended coverage endorsement then in use in the State to the full insurable value
of the Building. Such policy or policies of insurance shall name the Lessee and the Lessor as
insureds, as their respective interests may appear, and all Net Proceeds received under such policy
or policies by the Lessee or the Insurer shall be applied as directed by the Lessee. In addition,
the Lessee shall cause the general contractor at all times during the construction of the Building
to maintain general liability insurance in an amount not less than that required to be maintained
by the Lessee under Section 6.04, and the Lessee shall cause the general contractor to maintain
workers compensation insurance as required by law. Such insurance policy or policies shall
contain a provision that such insurance may not be canceled by the issuer thereof without at least
thirty- (30-) days advance written notice to the Lessor and the Lessee. All such policies, or
copies thereof, or certificates that such insurance is in full force and effect shall be delivered
to the Lessor at or prior to the commencement of construction.
The Lessee covenants to cause the Project to be constructed, equipped, and installed in
accordance with the Plans and Specifications and the Construction Contracts and warrants that the
construction, equipping, and installation of the Building and the Leased Equipment in accordance
with the Plans and Specifications will result in a facility suitable for use by the Lessee and that
all real and personal property provided for therein is necessary or appropriate in connection with
the Project. The Lessee may make changes in or additions to the Plans and Specifications;
provided, however, changes in or additions to the Plans and Specifications which are material shall
be subject to the prior written approval of the Consulting Architect.
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The Lessee shall not permit any mechanics or materialmens or other liens to be perfected or
remain against the Project for labor or materials furnished in connection with the construction of
the Project, provided that it shall not constitute an event of default hereunder if such a lien is
filed if the Lessee notifies the Lessor of the existence of such lien and if the Lessee in good
faith promptly contests such lien in accordance with the provisions of Section 6.08 of this Lease.
The Lessee agrees, on behalf of the Lessor, to complete the acquisition, construction,
equipping, and installation of the Project as promptly as practicable and with all reasonable
dispatch after the date of issuance of the Bonds. All Leased Equipment that is to be subject to
the operation of this Lease shall be acquired in the name of the Lessor on or before the date that
is one year after the Completion Date. No Leased Equipment that is to be subject to the operation
of this Lease shall be acquired in the name of the Lessor after the date that is one year after the
Completion Date.
Section 4.02.
Agreement to Issue the Bonds; Application of Proceeds
. In order to
provide funds for payment of the Costs of the Project, the Lessor agrees that it shall execute and
deliver the Bond Purchase Agreement and will sell and cause to be delivered to the Purchaser the
Bonds in the aggregate principal amount not to exceed $17,200,000, and will thereupon deposit in
the Project Fund all advances of purchase price of the Bonds made from time to time under the terms
of the Bond Purchase Agreement as provided therein.
Section 4.03.
Application of Moneys in the Project Fund
. The Lessor shall in the
Bond Purchase Agreement authorize and direct the Depositary to use the moneys in the Project Fund
to pay the following (but for no other purposes):
(a) (i) the cost of the preparation of Plans and Specifications (including any
preliminary study or planning of the Project or any aspect thereof), (ii) the cost of
acquisition, construction, equipping, and installation of the Project and all acquisition,
construction, equipping, and installation expenses required to provide utility services or
other facilities and all real or personal properties deemed necessary in connection with the
Project (including development, architectural, engineering, and supervisory services with
respect to any of the foregoing), and (iii) any other costs and expenses relating to the
Project;
(b) (i) the purchase price of the Leased Premises, the Building, and the Leased
Equipment, including all costs incident thereto, (ii) labor, services, materials, and
supplies used or furnished in site improvement and in the construction of the Project,
including all costs incident thereto, (iii) the cost of the acquisition, construction,
equipping, and installation of utility services or other facilities, (iv) all real and
personal property deemed necessary in connection with the Project, (v) consulting and
development fees payable to the Lessee or others, and (vi) the miscellaneous expenses
incidental to any of the foregoing items including the premium on any surety bond;
(c) to such extent as they shall not be paid by a contractor for construction or
installation with respect to any part of the Project, the premiums on all insurance required
-16-
to be taken out and maintained during the Construction Period under this Lease, or
reimbursement thereof if paid by the Lessee;
(d) the taxes, assessments, and other charges, if any, referred to in Section 6.03 that
may become payable during the Construction Period, or reimbursement thereof if paid by the
Lessee;
(e) expenses incurred in seeking to enforce any remedy against any contractor or
subcontractor in respect of any default under a contract relating to the Project;
(f) the fees or out-of-pocket expenses of the Lessee, if any, including, but not
limited to, architectural, engineering, and supervisory services with respect to the
Project;
(g) the fees, or out-of-pocket expenses, if any, of those providing services with
respect to the Project, including, but not limited to, architectural, engineering, and
supervisory services;
(h) the Lessee or the Lessor of such amounts, if any, as shall be necessary to
reimburse the Lessee or the Lessor in full for all advances and payments made by either of
them for any of the items set forth in (a) through (g) above; and
(i) any other costs and expenses relating to the Project that would constitute a cost
of the Project permitted to be paid by the Lessor under the Act.
(j) All proceeds of the Bonds remaining in the Project Fund after the Completion Date,
less amounts retained or set aside to meet costs not then due and payable or which are being
contested, shall be used to redeem the Bonds on the next succeeding Payment Date.
Section 4.04.
Disbursements from the Project Fund
.
(a) Subject to compliance by the Lessee with all of the terms, provisions, and conditions of
this Lease, including, but not limited to, the applicable conditions for disbursements set forth in
this Section, the Lessor will cause the Depositary to disburse sums in the Project Fund to the
Lessee or to the appropriate payee for Costs of the Project in one or more disbursements, upon the
submission by the Lessee to the Depositary of a disbursement request in the form attached hereto as
Exhibit C (a
Certificate and Requisition for Payment
), accompanied by an itemization of Costs of
the Project in such detail as the Depositary shall require, and the accuracy of such cost and fee
itemization shall be certified by the Lessee. The disbursement request must be signed by the
Authorized Lessee Representative.
(b) The Depositary shall fund, on the same banking day on which it receives the fully executed
Certificate and Requisition for Payment, each Certificate and Requisition for Payment, provided
that sufficient funds are then available in the Project Fund.
(c) Notwithstanding any other terms and provisions set forth herein, the Depositary may, in
the discretion of the Lessee, make all disbursements or any disbursement directly to the Lessee, or
to subcontractors, laborers, materialmen, or persons furnishing labor, services, or
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materials used or to be used on or in the construction of the Project (including authorized
extras) or to any combination of them. Any such disbursement shall be deemed to have been made to
the Lessee or for its account.
(d) The execution of each Certificate and Requisition for Payment submitted for disbursements
relating to Costs of the Project by the Lessee shall constitute the certification, warranty, and
agreement of the Lessee as follows:
(i) all evidence, statements, and other writings required to be furnished under the
terms of this Lease are true and omit no material fact, the omission of which may make them
misleading; and
(ii) all moneys previously disbursed have been used solely to pay for Costs of the
Project, and the Lessee has written evidence to support this item of warranty.
(e) The Lessee covenants and agrees that, upon the request of the Lessor from time to time, it
shall furnish the Lessor with evidence which is reasonably satisfactory to the Lessor (including,
but not limited to, certificates and affidavits of the Lessee and/or the Consulting Architect or
any contractor or such other person as the Lessor may reasonably require) showing that the Lessee
has substantially complied with all of the Lessees obligations hereunder.
(f) Each Certificate and Requisition for Payment shall constitute a representation by the
Lessee that the moneys therein referred to have been or are to be used for one of the purposes set
forth in Section 4.03 of this Lease and that none of the items for which payment is requested has
formed the basis for any payment previously made from the Project Fund, and the Depositary shall be
entitled to rely thereon and shall be held harmless by the Lessee for all liability in connection
therewith.
(g) All disbursements (except the disbursement required to be made at the time of issuance of
the Bonds) shall be made on the same banking day on which the Depositary receives the completed
Certificate and Requisition for Payment and shall be made at the office of the Depositary or at
such other place as the Depositary may designate. If sufficient liquid funds are not available to
the Depositary at the time of presentment of a Certificate and Requisition for Payment due to the
particular form of Project Fund investments or a lack of funds, payment of such Certificate and
Requisition for Payment shall be delayed until liquid funds or additional funds sufficient to
satisfy the requirements of this Section are received by the Depositary.
(h) The Depositary shall not make any disbursements from the Project Fund for Leased Equipment
or any other personal property unless the Depositary shall have first received copies of the bills
of sale or other evidence that title to such Leased Equipment and other property has been taken in
the name of the Lessor.
Section 4.05.
Obligation of the Parties to Cooperate in Furnishing Documents; Reliance of
the Depositary
. Upon payment of any expenses of the Lessor incurred in connection therewith
pursuant to Section 5.03, the Lessor agrees to cooperate with the Lessee in furnishing to the
Depositary the documents referred to in Sections 4.03 and 4.04 that are required to effect payments
out of the Project Fund, and the Lessor agrees to cause such orders to be
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directed to the Depositary as may be necessary to effect payments out of the Project Fund, in
accordance with Sections 4.03 and 4.04. Such obligation of the Lessor is subject to any provisions
of the Bond Purchase Agreement requiring additional documentation with respect to payments and
shall not extend beyond the moneys in the Project Fund available for payment under the terms of the
Bond Purchase Agreement. In making any such payment from the Project Fund, the Depositary may rely
on any such orders and certifications delivered to it pursuant to Sections 4.03 and 4.04.
Section 4.06.
Establishment of Completion Date
.
The Completion Date shall be
evidenced to the Lessor by a certificate of substantial completion listing the items to be
completed or corrected, if any, and the amounts to be withheld therefor, signed by the Authorized
Lessee Representative and approved by the Consulting Architect stating that, except for amounts
retained by the Depositary for Costs of the Project not then due and payable, (i) construction of
the Project has been substantially completed without material deviation from the Plans and
Specifications and all labor, services, materials, and supplies used in such construction have been
paid or provided for, (ii) all other facilities necessary in connection with the construction of
the Project have been constructed, acquired, equipped, and installed substantially in accordance
with the Plans and Specifications and all costs and expenses incurred in connection therewith have
been paid or provided for, (iii) according to the as built survey of the Leased Premises or a
certificate of the surveyor, the Building does not encroach on any other property or violate any
setback or sideline requirements applicable to the Leased Premises, and (iv) a certificate of
occupancy for the Project has been issued by appropriate local governmental authorities.
Notwithstanding the foregoing, such certificate may state that it is given without prejudice to any
rights against third parties which exist at the date of such certificate or which may subsequently
come into being. The Consulting Architect shall certify the matters covered by (i) and (ii) above.
It shall be the duty of the Lessee to cause the certificate contemplated by this Section to be
furnished as soon as the construction of the Project shall have been substantially completed. If
the Lessee undertakes additional Projects, it shall establish a Completion Date in accordance with
the foregoing procedures.
Section 4.07.
Lessee Required to Pay Acquisition and Construction Costs in Event Project
Funds Insufficient
.
In the event the moneys in the Project Fund advanced under the Bonds
available for payment of the Costs of the Project shall not be sufficient to pay the Costs of the
Project in full, the Lessee agrees to complete the acquisition, construction, equipping, and
installation of the Project and to pay all that portion of the Costs of the Project as may be in
excess of such moneys. The Lessor does not make any warranty, either express or implied, that such
moneys which, under the provisions of this Lease, will be available for payment of the Costs of the
Project, will be sufficient to pay all Costs of the Project. The Lessee agrees that if after
exhaustion of such moneys the Lessee shall pay any portion of the Costs of the Project pursuant to
the provisions of this Section, it shall not be entitled to any reimbursement therefor from the
Lessor or from the Depositary or from the owner of the Bonds, nor shall it be entitled to any
diminution of the Gross Rent. The obligation of the Lessee to complete the construction of the
Project shall survive any termination of this Lease.
Section 4.08.
Authorized Lessee Representatives and Successors
.
The Lessee shall
designate, in the manner prescribed in Section 1.01, the Authorized Lessee Representative. In
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the event that any person so designated and his alternate or alternates, if any, should become
unavailable or unable to take any action or make any certificate provided for or required in this
Lease, a successor shall be appointed in the same manner.
Section 4.09.
Enforcement of Remedies against Contractors and Subcontracts and Their
Sureties and Against Manufacturers
.
The Lessee covenants that it will take such action and
institute such proceedings as shall be necessary to cause and require all contractors and
subcontractors and material suppliers to complete their contracts diligently in accordance with the
terms of such contracts, including, without limitation, the correction of any defective work, with
all expenses incurred by the Lessee in connection with the performance of its obligations under
this Section to be considered part of the Costs of the Project. The Lessor agrees that the Lessee
may, from time to time, in its own name, or in the name of the Lessor, take such action as may be
necessary or advisable, as determined by the Lessee, to insure the construction of the Project in
accordance with the terms of the Construction Contracts and the Plans and Specifications, to insure
the peaceable and quiet enjoyment of the Project for the Lease Term, and to insure the performance
by the Lessor of all covenants and obligations of the Lessor under this Lease, with all costs and
expenses incurred by the Lessee in connection therewith to be considered as part of the Costs of
the Project. Any amounts recovered by way of penalties or damages, whether liquidated or actual,
for delays in completion by a contractor, and any other amounts recovered by way of damages,
refunds, adjustments, or otherwise in connection with the foregoing prior to the Completion Date,
less any unreimbursed legal expenses incurred to collect the same, shall be paid into the Project
Fund and, after the Completion Date, shall be disbursed to the Lessee.
The Lessee covenants that it will take such action and institute such proceedings as shall be
necessary to cause and require any manufacturers of the Leased Equipment and any dealer to fulfill
their warranties and contractual responsibilities diligently in accordance with the terms of any
purchase, lease, or installation contracts, including, without limitation, the correction of any
defective parts or workmanship, with all expenses incurred by the Lessee in connection with the
performance of its obligations under this Section to be considered part of the Costs of the
Project. The Lessor agrees that the Lessee may, from time to time, take such action as may be
necessary or advisable, as may be determined by the Lessee, to insure the conformity of the Leased
Equipment to the specifications therefor, with all costs and expenses incurred by the Lessee in
connection therewith to be considered as part of the Costs of the Project.
Section 4.10.
No Agency Relationships
.
The Lessor and the Bondholder do not assume
the duties of the contractor or architect of the Project or of any Additions or Alterations and
shall be under no obligation to construct or supervise the construction of any Additions or
Alterations or to make any inspections of the improvements related thereto, and it is further
understood and agreed that any inspection by the Lessor or its agents of the Project or of any
Additions or Alterations, whether paid for by the Lessee or its successors in title, is for the
sole purpose of protecting the title of the Lessor to the Project, and the Lessee shall not be
entitled to claim any loss or damage against the Lessor or its agents or employees for the failure
of the Lessors agents or employees to properly discharge their responsibilities to the Lessor.
Section 4.11.
Investment of Funds and Accounts.
Subject to Section 5.3 of the Bond
Purchase Agreement, any moneys held as a part of the Project Fund, or any other special trust
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funds shall be invested or reinvested by the Depositary at the written direction of the
Authorized Lessee Representative, to the extent permitted by State law, in such Permitted
Investments as may be designated by the Lessee. The Depositary may make any and all such
investments through its own bond or investment department.
The investments so purchased shall be held by the Depositary and shall be deemed at all times
a part of the Project Fund or the trust account described in the preceding paragraph, as the case
may be, and the interest accruing thereon and any profit realized therefrom shall be credited as
provided in Section 5.3 of the Bond Purchase Agreement to such fund or account, and any losses
resulting from such investments shall be charged to such fund or account therein and paid by the
Lessee.
[End of Article IV]
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EFFECTIVE DATE OF THIS LEASE; DURATION OF LEASE TERM;
RENTAL PROVISIONS; NATURE OF OBLIGATIONS OF LESSEE
Section 5.01.
Effective Date of this Lease; Duration of Lease Term
.
This Lease shall
become effective upon its delivery and shall be in full force and effect until midnight, July 1,
2017 subject to the provisions of this Lease permitting earlier termination or extension of the
Lease Term (including particularly Articles X and XI), or if the Bonds have not been paid or
retired, until such date as such payment or provision shall have been made; provided, however, that
the covenants and obligations expressed herein to so survive shall survive the expiration or
earlier termination of this Lease.
Section 5.02.
Delivery and Acceptance of Possession
.
The Lessor agrees to deliver to
the Lessee sole and exclusive possession of the Leased Premises upon execution and delivery of this
Lease (subject to the right of the Lessor to enter thereon for inspection purposes and subject to
the other provisions of Section 8.02), and the Lessee hereby accepts possession of the Leased
Premises. The Lessor shall be permitted such continued possession of the Leased Premises as shall
be necessary and convenient for it to construct or install or cause to be constructed or installed
the Project and any Additions or Alterations and to make or cause to be made any repairs or
restorations required or permitted to be made by the Lessor pursuant to the provisions hereof. The
Lessor covenants and agrees that it shall not take any action, other than pursuant to Article X of
this Lease, to prevent the Lessee from having quiet and peaceable possession and enjoyment of the
Project during the Lease Term and shall, at the request of the Lessee and at the cost of the
Lessee, cooperate with the Lessee in order that the Lessee may have quiet and peaceable possession
and enjoyment of the Project.
Section 5.03.
Rents and Other Amounts Payable
.
(a)
Basic Rent
: Until the principal of, redemption premium, if any, and interest on
the Bonds shall have been fully paid, the Lessee shall pay to the Bondholder for the account of the
Lessor as rent for the Project the following amounts:
(i) on or before each July 1, a sum equal to the amount payable on such date as
interest on the Bonds, as provided in the Bond Purchase Agreement, and
(ii) on or before July 1, 2017, a sum equal to the principal due on such date, which is
the maturity date of the Bonds, as provided in the Bond Purchase Agreement.
(b)
Basic Rent General Provisions
: Each payment of Basic Rent under this Section, due
on an interest or principal payment date or redemption date until the Bonds are fully paid shall in
all events be sufficient to pay the total amount of interest, principal, redemption requirement,
and premium, if any, payable on the Bonds on the principal or interest payment date or on the
redemption date. Any payment of Basic Rent not received by the Bondholder when
due shall continue as an obligation of the Lessee until paid and shall bear interest at the
rate of interest on the Bonds.
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(c)
Additional Rent
:
(i) The Lessee agrees that during the Lease Term it shall pay directly to the Lessor an
amount sufficient to pay the amounts set forth in Section 12.07. Such payments of
Additional Rent shall be billed to the Lessee by the Lessor from time to time, together with
a statement certifying that the amount billed has been incurred or paid by it for one or
more of the above items. Amounts so billed shall be paid by the Lessee within thirty- (30-)
days after receipt of the bill by the Lessee.
(ii) The Lessee agrees that during the Lease Term it shall pay directly to any lessor
of Leased Equipment to the Lessor, for the account of the Lessor, all rentals due under the
leases relating to such Leased Equipment, as and when the same become due and payable.
In the event the Lessee shall fail to make any of the payments required in this Section, the
unpaid amount shall continue as an obligation of the Lessee until fully paid.
Section 5.04.
Place of Rental Payments
. The Basic Rent shall be paid in lawful money
of the United States of America directly to the Bondholder for the account of the Lessor. The
Additional Rent provided for in clause (a) under the heading Additional Rent in Section 5.03
shall be payable directly to the Lessor. The Additional Rent provided for in clause (b) under the
heading Additional Rent in Section 5.03 shall be paid directly to the lessor of the Leased
Equipment.
Section 5.05.
Nature of Obligations of Lessee Hereunder
.
(a) The obligations of the Lessee to make pay the Gross Rent and the payments required in
other sections hereof and to perform and observe any and all of the other covenants and agreements
on its part contained herein shall be a general obligation of the Lessee and shall be absolute and
unconditional irrespective of any defense or any rights of setoff, recoupment, or counterclaim,
except payment, it may otherwise have against the Lessor. The Lessee agrees that it shall not (i)
suspend, abate, reduce, abrogate, diminish, postpone, modify, or discontinue any payments provided
for in Section 5.03, (ii) fail to observe any of its other agreements contained in this Lease, or
(iii) except as provided in Section 11.01 and 11.02, terminate its obligations under this Lease for
any contingency, act of God, event, or cause whatsoever, including, without limiting the generality
of the foregoing, failure of the Lessee to occupy or to use the Project as contemplated in this
Lease or otherwise, any change or delay in the time of availability of the Project, any acts or
circumstances which may impair or preclude the use or possession of the Project, any defect in the
title, design, operation, merchantability, fitness, or condition of the Project or in the
suitability of the Project for the Lessees purposes or needs, failure of consideration, any
declaration or finding that the Bonds are unenforceable or invalid, the invalidity of any provision
of this Lease, any acts or circumstances that may constitute an eviction or constructive eviction,
destruction of or damage to the Project, the taking by eminent domain of title to or the use of all
or any part of the Project, failure of the Lessors title to the
Project or any part thereof, commercial frustration of purpose, any change in the tax or other
laws of the United States of America or of the State or any political subdivision of either thereof
or in the rules or regulations of any governmental authority, or any
failure of the Lessor to perform and observe any agreement, whether express or implied, or any duty, liability, or
obligation arising out of or connected with this Lease.
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(b) Nothing contained in this Section shall be construed to release the Lessor from the
performance of any of the agreements on its part herein contained. In the event the Lessor should
fail to perform any such agreement on its part, the Lessee may institute such action against the
Lessor as the Lessee may deem necessary to compel performance so long as such action does not
abrogate the Lessees obligations hereunder. The Lessor hereby agrees that it shall not take or
omit to take any action that would cause this Lease to be terminated. The Lessee may, however, at
its own cost and expense and in its own name or in the name of the Lessor, prosecute or defend any
action or proceeding or take any other action involving third persons which the Lessee deems
reasonably necessary in order to secure or protect its right of possession, occupancy, and use
hereunder, and in such event the Lessor hereby agrees to cooperate fully with the Lessee and to
take all action necessary to effect the substitution of the Lessee for the Lessor in any such
action or proceeding if the Lessee shall so request.
[End of Article V]
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MAINTENANCE, TAXES, AND INSURANCE
Section 6.01.
Maintenance and Modification of Project by the Lessee
.
The Lessee
agrees that during the Lease Term it shall at its own expense (i) keep the Project in as reasonably
safe condition as its operations shall permit, (ii) keep the Building and all other improvements
forming a part of the Project in good repair and in good operating condition, making from time to
time, subject to the provisions of Section 6.02, all necessary and proper repairs thereto and
renewals and replacements thereof, including external and structural repairs, renewals, and
replacements, and (iii) use the Leased Equipment in the regular course of its business only, within
the normal capacity of the Leased Equipment, without abuse, and in a manner contemplated by the
manufacturer thereof, and cause the Leased Equipment to be maintained in accordance with the
manufacturers then currently published standard maintenance recommendations. Subject to the
provisions of Section 8.10, the Lessee may, also at its own expense, from time to time make any
Additions or Alterations to the Project that it may deem desirable for its purposes that do not
adversely affect the operation or value of the Project. Subject to the provisions of Section 9.06,
Additions or Alterations to the Project so made by the Lessee shall be on the Leased Premises and
shall become a part of the Project, and shall become subject to the demise of this Lease. The
Lessee further agrees that at all times during the construction of Additions or Alterations that
cost in excess of $500,000 it shall maintain or cause to be maintained in full force and effect
Builders Risk-Completed Value Form insurance to the full insurable value of such Additions or
Alterations. The Lessee shall not permit any mechanics or materialmens or other statutory liens
to be perfected or remain against the Project for labor or materials furnished in connection with
any Additions or Alterations so made by it, provided that it shall not constitute an event of
default hereunder upon such lien being filed, if the Lessee shall promptly notify the Lessor of any
such liens, and the Lessee in good faith promptly contests such liens in accordance with the
provisions of Section 6.08. The Lessee shall not do or permit others under its control to do any
work in or about the Project or related to any repair, rebuilding, restoration, replacement,
alteration of, or addition to the Project, or any part thereof, unless the Lessee shall have first
procured and paid for all requisite municipal and other governmental permits and authorizations.
All such work shall be done in a good and workmanlike manner and in compliance with all applicable
building, zoning, and other laws, ordinances, governmental regulations, and requirements and in
accordance with the requirements, rules, and regulations of all insurers under the policies
required to be carried under the provisions of this Lease.
Section 6.02.
Removal of Leased Equipment.
The Lessor shall not be under any
obligation to renew, repair, or replace any inadequate, obsolete, worn out, unsuitable,
undesirable, or unnecessary Leased Equipment. If no Event of Default under this Lease shall have
happened and be continuing, in any instance where the Lessee in its discretion determines that any
items of Leased Equipment or parts thereof have become inadequate, obsolete, worn out, unsuitable,
undesirable, or unnecessary, the Lessee may remove such items of Leased Equipment or parts thereof
from the Leased Premises and (on behalf of the Lessor) sell, trade
in, exchange, or otherwise dispose of them (as a whole or in part) without any responsibility or
accountability to the Lessor therefor.
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The removal from the Project of any portion of the Leased Equipment pursuant to the provisions
of this Section shall not entitle the Lessee to any abatement or diminution of the Gross Rent.
Upon compliance with this Section, the Lessor agrees to deliver any bills of sale or releases
in form and substance acceptable to the Lessee and which are deemed necessary by the Lessee with
respect to the removal of such Leased Equipment from the demise of this Lease. The Lessee shall
execute and deliver to the Lessor such documents as it may from time to time require to confirm the
title of the Lessor (subject to this Lease) to any items of equipment and other personal property
which under the provisions of this Section are to become a party of the Leased Equipment and shall
pay all costs (including reasonable and actual attorneys fees) incurred in connection therewith.
Section 6.03.
Taxes, Other Governmental Charges, and Utility Charges
.
The Lessee
shall duly pay and discharge, as the same become due and payable, (i) all taxes and governmental
charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with
respect to the Project or any machinery, equipment, furnishings, or other property installed by the
Lessee thereon, including, without limiting the generality of the foregoing, any taxes levied upon
or with respect to the lease revenues and receipts of the Lessor from the Project, including all
ad
valorem
taxes or payments in lieu of such taxes lawfully assessed upon the Lessees rights in and
to the Project and all payments due under the PILOT Agreement, (ii) all utility and other charges
incurred in the ownership, operation, maintenance, use, occupancy, and upkeep of the Project, and
(iii) all assessments and charges lawfully made by any governmental body for public improvements
that may be secured by a lien on the Project; provided, that with respect to special assessments or
other governmental charges that may lawfully be paid in installments over a period of years, the
Lessee shall be obligated to pay only such installments as are required to be paid during the Lease
Term.
If the Lessee shall first notify the Lessor of its intention so to do, the Lessee may, at its
own expense and in its own name and behalf or in the name and behalf of the Lessor and in good
faith, contest any such taxes, assessments, and other charges in accordance with the provisions of
Section 6.08 and, in the event of any such contest, may permit the taxes, assessments, or other
charges so contested to remain unpaid during the period of such contest and any appeal therefrom.
Section 6.04.
Insurance Required
.
Throughout the Lease Term, the Lessee shall keep
the Project or cause the same to be kept continuously insured against such casualties,
contingencies, and risks as are customarily insured against with respect to facilities of like size
and type, paying as the same become due all premiums in respect thereto.
Section 6.05.
Application of Net Proceeds of Insurance
.
The Net Proceeds of the
insurance carried pursuant to the provisions of Section 6.04 shall be paid and applied as provided
in Section 7.01 or applied toward extinguishment or satisfaction of the liability with respect to
which such insurance proceeds have been paid.
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Section 6.06.
Additional Provisions Respecting Insurance
.
All insurance required by
Section 6.04 shall be taken out and maintained in generally recognized responsible insurance
companies qualified to do business in the State, selected by the Lessee and subject to the approval
of the Lessor, which approval shall not be unreasonably withheld. All policies evidencing such
insurance shall be subject to the approval of the Lessor, which approval shall not be unreasonably
withheld. All policies evidencing such insurance shall provide for payment to the Lessor and the
Lessee, as their respective interests may appear and the policies required by Section 6.04 shall
name the Lessor as additional insured. A certificate or certificates of the insurers that such
insurance is in force and effect shall be deposited with the Lessor, and prior to the expiration of
any such policy the Lessee shall furnish the Lessor with evidence reasonably satisfactory to the
Lessor that the policy has been renewed or replaced or is no longer required by this Lease. In
lieu of separate policies, the Lessee may maintain one or more blanket policies of insurance having
the coverage required by Section 6.04. All such policies shall provide that such insurance may not
be modified adversely to the interests of the Lessor or canceled by the Lessor thereof before the
Bonds have been fully paid without at least thirty (30) days notice to the Lessee and the Lessor.
Section 6.07.
Advances by the Lessor or the Bondholder
.
If the Lessee shall fail to
maintain the insurance coverages required by this Lease or shall fail to pay the taxes and other
charges required to be paid by this Lease or shall fail to keep the Project in as reasonably safe
condition as its operation will permit or shall fail to keep the Building and the Leased Equipment
in good repair and good operating condition, the Lessor or the Bondholder may (but shall be under
no obligation to), after notifying the Lessee of its intention to do so, take out the required
policies of insurance and pay the premiums on the same or pay the taxes or other charges or make
the required repairs, renewals, and replacements, and all amounts so advanced therefor by the
Lessor or the Bondholder shall become an additional obligation of the Lessee to the one making the
advancement, which amounts, together with interest thereon from the date of payment at the
prevailing rate charged prime corporate borrowers from time to time per annum on demand loans as
announced from time-to-time as the prime rate in the
Wall Street Journal
plus two percent (2%),
the Lessee agrees to pay on demand. Any remedy herein vested in the Lessor for the collection of
rent shall also be available to the Lessor and the Bondholder for the collection of all such
amounts so advanced.
Section 6.08.
Contest of Liens
.
In the event the Lessee in good faith contests
amounts pursuant to Sections 6.01 or 6.03 of this Lease, the Lessee may permit the items so
contested to remain undischarged and unsatisfied during the period of such contest and any appeal
therefrom, provided the Lessee shall furnish the Lessor with an opinion of Independent Counsel
stating that by nonpayment of such items the title of the Lessor as to any material part of the
Project will not be materially and imminently endangered and neither the Project nor any material
part thereof will be subject to imminent loss or forfeiture. If the Lessee is unable or otherwise
fails to obtain such an opinion of Independent Counsel, the Lessee shall promptly cause to be
satisfied and discharged all such unpaid items by payment thereof, by causing the lien to be
transferred from the Project to other security as permitted by State law, or by payment of the
amount so contested into a reserve held by the Lessor. Such reserve may be used by the Lessor to
satisfy the items if action is taken to enforce the lien and such action is not stayed. Such
reserve will be returned to the Lessee if the items are successfully contested. In the event the
Lessee shall fail to pay any of
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the foregoing items required by this Section to be paid by the Lessee, the Lessor may (but
shall be under no obligation to) pay the same, and any amounts so advanced therefor by the Lessor
shall become an advance repayable in accordance with Section 6.07 of this Lease. The Lessor shall,
at the expense of the Lessee, cooperate fully with the Lessee in any such contest.
[End of Article VI]
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DAMAGE, DESTRUCTION, AND CONDEMNATION
Section 7.01.
Damage and Destruction
. If, prior to the termination of this Lease,
the Project is destroyed or is damaged (in whole or in part) by fire or other casualty, the Lessee
shall promptly repair, rebuild, restore, or re-equip the Project to substantially the same
condition thereof as existed prior to the event causing such damage or destruction with such
changes, alterations, and modifications (including the substitution and addition of other property)
as may be desired by the Lessee, and as will not impair the value or the character of the Project
and shall apply for such purpose so much as may be necessary of any Net Proceeds of insurance
resulting from such recovery, and the Lessee shall be obligated to continue to pay the Gross Rent.
In the event the Net Proceeds are not sufficient to pay in full the costs of any such repair,
rebuilding, restoration, or re-equipping, the Lessee shall nonetheless complete such work and shall
pay that portion of the costs thereof in excess of the amount of such Net Proceeds.
Section 7.02.
Condemnation and Failure of Title
. In the event that title to the
Project shall fail or title to or the temporary use of the Project or any part thereof shall be
taken under the exercise of the power of eminent domain by any governmental body or by any Person
acting under governmental authority, the Lessee shall be obligated to continue to pay the Gross
Rent.
The Lessor shall cooperate fully with the Lessee in handling and conducting any prospective or
pending condemnation proceeding with respect to the Project or any part thereof and shall, to the
extent it may lawfully do so, permit the Lessee to litigate in any such proceeding in the name and
behalf of the Lessor. In no event shall the Lessor voluntarily settle, or consent to the
settlement of, any prospective or pending condemnation proceeding with respect to the Project or
any part thereof without the prior written consent of the Lessee.
[End of Article VII]
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ADDITIONAL COVENANTS
Section 8.01.
No Warranty of Condition or Suitability by the Lessor
.
The
Lessor makes no warranty, either express or implied, as to the habitability, merchantability,
condition, or workmanship of any part of the Project or that it will be suitable for the Lessees
purposes or needs
.
Section 8.02.
Access to Leased Premises and Records
.
The Lessor, for itself and its
duly authorized representatives and agents, shall have the right, upon reasonable prior notice, to
enter the Project at all reasonable times during the Lease Term for the purpose of (i) examining
and inspecting the same, including any construction or reconstruction thereof, insofar as necessary
to ascertain compliance with this Lease, and (ii) performing such work in and about the Project
made necessary by reason of an Event of Default. The Lessor shall also have the right at all
reasonable times to examine and make extracts from the books and records of the Lessee, insofar as
such books and records relate to the repair and maintenance of the Project and insofar as necessary
to ascertain compliance with this Lease.
Section 8.03.
Lessee to Maintain its Existence; Conditions Under Which Exceptions
Permitted
.
Except as provided in the following sentence, the Lessee agrees that while this
Lease is in effect it shall maintain its legal existence as a Mississippi corporation, shall not
consolidate with or merge into another Person or permit one or more other Persons to consolidate
with or merge into it, and shall not dissolve or otherwise dispose of all or substantially all of
its assets. The Lessee may, without violating the agreement contained in this Section, consolidate
with or merge into another domestic corporation (that is, a corporation organized and existing
under the laws of one or more states of the United States of America), or permit one or more such
domestic corporations to consolidate with or merge into it, or sell or otherwise transfer to
another Person all or substantially all of its assets as an entirety and thereafter dissolve,
provided the surviving, resulting, or transferee Person (i) is authorized to do business in the
State, (ii) is a domestic corporation, partnership, or other entity, or if a natural person, is a
resident of the United States of America, (iii) assumes in writing all of the obligations of the
Lessee under this Lease, and (iv) obtains all licenses and permits required by law to operate the
Project.
Section 8.04.
Qualification in the State
.
The Lessee warrants that it is, and while
this Lease is in effect it will continue to be, duly qualified to do business in the State.
Section 8.05.
Granting of Easements
.
If no Event of Default under this Lease shall
then be continuing, the Lessor, at the request of the Lessee, shall at any time or times grant
easements, licenses, rights of way (including the dedication of public highways), and other rights
or privileges in the nature of easements with respect to any property included in the Project, or
the Lessor, at the request of the Lessee, shall release existing easements, licenses, rights of
way, and other rights or privileges with or without consideration, and the Lessor agrees that it
shall execute and deliver any instrument necessary or appropriate to confirm and grant or release
any
such easement, license, right of way, or other right or privilege upon receipt of (i) a copy
of the instrument of grant or release, (ii) a written application signed by the Authorized Lessee
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Representative requesting such instrument, and (iii) a certificate executed by the Authorized
Lessee Representative stating that such grant or release will not impair the effective use or
interfere with the operation of the Project. Any money consideration received in connection with
the granting or release of an easement pursuant to this Section shall be paid to the Lessee. No
grant or release effected under the provisions of this Section shall entitle the Lessee to any
abatement or diminution of the Gross Rent.
Section 8.06.
Indemnity
.
(a) The Lessee shall and agrees to indemnify and save the Lessor and its directors, officers,
members, and employees harmless against and from all claims by or on behalf of any Person arising
from the conduct or management of or from any work or thing done on the Project and against and
from all claims arising from (i) any condition of or operation of the Project, (ii) any breach or
default on the part of the Lessee in the performance of its obligations under this Lease, (iii) any
act or negligence of the Lessee or of any its agents, contractors, servants, employees, or
licensees, or (iv) any act or negligence of any assignee or sublessee of the Lessee or of any
agents, contractors, servants, employees, or licensees of any assignee or sublessee of the Lessee,
provided, however, this indemnity shall not apply to any act of negligence or willful or
intentional misconduct of the Lessor. The Lessee shall indemnify and save the Lessor harmless from
and against all costs and expenses incurred in or in connection with any such claim arising as
aforesaid from clauses (i), (ii), (iii), or (iv) above, or in connection with any action or
proceeding brought thereon, including reasonable and actual attorneys fees as provided in Section
10.04 hereof, and upon notice from the Lessor, the Lessee shall defend it in any such action or
proceeding.
(b) Notwithstanding the fact that it is the intention of the parties that the Lessor and its
directors, officers, members, and employees shall not incur pecuniary liability by reason of the
terms of the Lessor Contracts, or the undertakings required of the Lessor thereunder or by reason
of (i) the issuance of the Bonds, (ii) the execution of the Lessor Contracts, (iii) the performance
of any act required by the Lessor Contracts, (iv) the performance of any act requested by the
Lessee, or (v) any other costs, fees, or expenses incurred by the Lessor with respect to the
Project or the financing thereof, including all claims, liabilities, or losses arising in
connection with the violation of any statutes or regulations pertaining to the foregoing,
nevertheless, if the Lessor should incur any such pecuniary liability, then in such event the
Lessee shall indemnify and hold harmless the Lessor against all claims by or on behalf of any
Person arising out of the same and all costs and expenses incurred in connection with any such
claim or in connection with any action or proceeding brought thereon, including reasonable and
actual attorneys fees as provided in Section 10.04 hereof, and upon notice from the Lessor, the
Lessee shall defend the Lessor in any such action or proceeding; provided that if a court of
competent jurisdiction determines that the provisions of Section 13-8-2 of the Official Code of
Georgia Annotated are applicable to this Lease, the parties hereto agree that any agreement to
indemnify contained in this Lease shall not extend to any liability for damages arising out of
bodily injury to persons or damage to property caused by or resulting from the sole negligence of
the Lessor or its agents or employees relative to the construction, alteration, repair, or
maintenance of a building, structure, appurtenances, and appliances, including moving,
demolition, and excavating connected therewith, it being understood and agreed that this
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exception
is included herein to assure the validity and enforceability of the indemnity provision hereof
under Georgia law, and, in particular, Section 13-8-2 of the Official Code of Georgia Annotated,
and is not otherwise intended by the parties to narrow the indemnity provision hereof. The
indemnity contained in this Section shall not apply to any acts of negligence or willful misconduct
or intentional misconduct of the Lessor.
(c) Nothing contained in this Section shall require the Lessee to indemnify the Lessor or its
officials, directors, members, or employees for any claim or liability which the Lessee was not
given any opportunity to contest or for any settlement of any such action effected without the
Lessees consent (assuming such rights are available and have not been waived in writing by the
Lessee). The indemnity of the Lessor and its officials, directors, members, and employees
contained in this Section shall survive the termination of this Lease.
Section 8.07.
Use of Party Walls
.
If the Lessee purchases any unimproved part of or
interest in the Leased Premises, pursuant to the provisions of Section 11.04 of this Lease, or
otherwise acquires or leases other real property adjacent to the Leased Premises, the Lessee and
the Lessor agree that all walls presently standing or hereafter erected by the Lessor or the Lessee
as a part of the Project on or contiguous to the boundary line of the portion of or interest in the
Leased Premises or other real property so purchased, acquired, or leased shall be party walls, and
each party grants to the other a 10-foot easement adjacent to any such party wall for the purpose
of inspection, maintenance, repair, and replacement thereof and the tying-in of new construction.
If the Lessee utilizes any party wall for the purpose of tying in new construction that will be
utilized under common control with the Project, the Lessee may also tie into the utility facilities
on the Leased Premises for the purpose of serving the new construction and may remove any
non-loadbearing wall panels in the party wall; provided, however, that if the property so owned,
purchased, acquired, or leased by the Lessee ceases to be operated under common control with the
Project, the Lessee covenants that it shall install non-loadbearing wall panels similar in quality
to those that have been removed and shall provide separate utility services for the new
construction.
Section 8.08.
Operation of Project and Safety Code
.
The Lessee warrants that
throughout the Lease Term it shall operate the Project as poultry feed mill, administration,
hatchery and live-haul facilities or cause the same to be operated as poultry feed mill,
administration, hatchery, and live-haul facilities and shall continue to maintain the Project in
compliance in all material respects with all applicable life and safety codes and all applicable
building and zoning, health, and safety ordinances and laws, all applicable Environmental Laws, and
all other applicable laws, ordinances, rules, and regulations of the United States of America, the
State, and any political subdivision or agency thereof having jurisdiction over the Project, except
those laws, ordinances, rules, and regulations, the non-compliance with which would not have a
material adverse effect upon the ability of the Lessee to perform its obligations under this Lease.
Section 8.09.
Hazardous Waste
.
(a) In addition to and without limitation of all
other representations, warranties, and covenants made by the Lessee under this Lease, the Lessee
further represents, warrants, and covenants that, except as disclosed in writing to the Lessor, the
Lessee has not and, to the best of its knowledge, any contractors with respect to the Project
have not, used Hazardous Materials (as hereinafter defined) on, from, or affecting the Project in
any
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manner which violates in any material respect any Environmental Laws, and that, to the best of
the Lessees knowledge, after due investigation, no prior owner of the Project or any tenant,
subtenant, prior tenant, or prior subtenant have used Hazardous Materials on, from, or affecting
the Project in any manner which violates Environmental Laws. The Lessee shall keep or cause the
Project to be kept free of Hazardous Materials except as otherwise provided in this Section.
(b) Without limiting the generality of the foregoing, the Lessee shall not cause or permit the
Project or any part thereof to be used to generate, manufacture, refine, transport, treat, store,
handle, dispose of, transfer, produce, or process Hazardous Materials, except in substantial
compliance with all applicable Environmental Laws, nor shall the Lessee cause or permit, as a
result of any intentional or unintentional act or omission on the part of the Lessee or any tenant
or subtenant, a release of a reportable quantity of Hazardous Materials onto the Project or onto
any other property. The Lessee shall substantially comply with and ensure substantial compliance
by all tenants and subtenants with all applicable Environmental Laws, whenever and by whomever
invoked, and shall obtain and comply with, and ensure that all tenants and subtenants obtain and
comply with, any and all approvals, registrations, or permits required thereunder. The Lessee
shall (i) conduct and complete all investigations, studies, samplings, and testing and all
remedial, removal, and other actions necessary to clean up and remove all Hazardous Materials on,
from, or affecting the Project during the Lease Term in accordance with all applicable
Environmental Laws, and (ii) defend, indemnify, and hold harmless the Lessor from and against any
claims, demands, penalties, fines, liabilities, settlements, damages, costs, or expenses of
whatever kind or nature, known or unknown, contingent or otherwise arising out of or in any way
related to (x) the presence, disposal, release, or threatened release of any Hazardous Materials
during the Lease Term which are on, from, or affecting the soil, water, vegetation, buildings,
personal property, persons, animals, or otherwise of the Project, or (y) any violation during the
Lease Term of Environmental Laws or any policies or requirements of the Lessor, which are based
upon or in any way related to such Hazardous Materials including, without limitation, reasonable
and actual attorneys fees, investigation and laboratory fees, court costs, and litigation
expenses. In the event of the termination of this Lease, the Lessee shall deliver the Project free
of any and all Hazardous Materials so that the condition of the Project shall conform to all
applicable Environmental Laws affecting the Project.
(c) For purposes of this Section, Hazardous Materials includes, without limitation, any
flammable explosives, radioactive materials, hazardous materials or wastes, hazardous or toxic
substances, or related materials defined in any Environmental Law; provided, however, that
Hazardous Materials shall not include, for purposes of this Section, nonfriable asbestos-containing
products or cleaning products, medical supplies, or other substances used by the Lessee in the
ordinary course of conduct of its operations at the Project. The provisions of this Section shall
be in addition to any and all other obligations and liabilities the Lessee may have to the Lessor
at common law or under Section 8.05 hereof and shall survive the termination of this Lease.
[End of Article VIII]
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ASSIGNMENT, SUBLEASING, ENCUMBERING, AND SELLING;
REDEMPTION; RENT PREPAYMENTS AND ABATEMENT;
INSTALLATION OF LESSEES OWN MACHINERY AND EQUIPMENT
Section 9.01.
Assignment and Subleasing
. The rights and obligations of the Lessee
under this Lease may be assigned and delegated, and the Project may be subleased, as a whole or in
part, by the Lessee without the necessity of obtaining the consent of the Lessor, subject, however,
to each of the following conditions:
(a) The assignee or sublessee shall meet the requirements for a successor corporation
set forth in Section 8.03 hereof.
(b) No assignment or sublease shall relieve the Lessee from primary liability for any
of its obligations hereunder, and in the event of any such assignment or sublease, the
Lessee shall continue to remain primarily liable for payment of the Gross Rent and for the
payment, performance, and observance of the other obligations and agreements on its part
herein provided to be performed and observed by it.
(c) The assignee or sublessee shall assume in writing the obligations of the Lessee
under the Lessee Contracts to the extent of the interest assigned or subleased.
(d) The Lessee shall furnish or cause to be furnished to the Lessor assurances
reasonably satisfactory to the Lessor that the Project will continue to be operated as a
project within the meaning of the Act.
(e) No such assignment or sublease shall give rise to a novation.
(f) The Lessee shall, within thirty (30) days after the execution thereof, furnish or
cause to be furnished to the Lessor a true and complete copy of each such assignment or
sublease, or assumption of the obligation, as the case may be. The Lessor shall have the
right, at any time and from time to time, to notify any assignee or sublessee of the rights
of the Lessor as provided by this Section.
The Lessor confirms and recognizes that the right of possession of sublessees of the Lessee to
the Leased Premises and their other rights arising out of the subleases shall not be affected or
disturbed in any way by the Lessor or by the exercise of any rights or remedies by the Lessor for
any reason other than one which would entitle the Lessee under the subleases to dispossess the
sublessees from the Leased Premises or which would constitute an event of default under the
subleases.
This Lease has been executed in several counterparts. No assignments of an ownership or
security interest this Lease may be made other than by transfer of counterpart number 1.
Section 9.02.
Restrictions on Sale, Encumbrance, or Conveyance of the Project by the
Lessor
. The Lessor agrees that it shall not (1) directly, indirectly, or beneficially sell,
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convey, or otherwise dispose of any part of its interest in the Project during the Lease Term,
(2) permit any part of the Project or the Leased Premises to become subject to any lien, claim of
title, encumbrance, security interest, conditional sale contract, title retention arrangement,
finance lease, or other charge of any kind, without the written consent of the Lessee, and (3)
assign, transfer, or hypothecate (other than pursuant to the Bond Purchase Agreement) any payment
of rent (or analogous payment) then due or to accrue in the future under any lease of the Project
or the Leased Premises, except that if the laws of the State at the time shall permit, nothing
contained in this Section shall prevent the consolidation of the Lessor with, or merger of the
Lessor into, or transfer of the Project as an entirety to, any public body of the State whose
property and income are not subject to taxation and which has authority to carry on the business of
owning and leasing the Project, provided, that upon any such consolidation, merger, or transfer,
the due and punctual payment of the principal of, premium, if any, and interest on the Bonds
according to their tenor, and the due and punctual performance and observance of all the agreements
and conditions of the Lessor Contracts to be kept and performed by the Lessor, shall be expressly
assumed in writing by the public body resulting from such consolidation or surviving such merger or
to which the Project shall be transferred as an entirety.
Section 9.03.
Redemption of Bonds
. The Lessor, at the written request of the Lessee
at any time and if the Bonds are then callable or available for purchase, and if there are funds
available therefor, shall forthwith take all steps that may be necessary under the applicable
redemption or purchase provisions of the Bond Purchase Agreement to effect redemption or purchase
of all or part of the then outstanding Bonds, as may be specified by the Lessee, on the earliest
date on which such redemption or purchase may be made under such applicable provisions.
Section 9.04.
Prepayment of Rents
. There is expressly reserved to the Lessee the
right, and the Lessee is authorized and permitted, at any time it may choose, to prepay all or any
part of the Gross Rent, and the Lessor agrees that the Bondholder shall accept such prepayments of
rents when the same are tendered by the Lessee. All rents so prepaid shall at the written
direction of the Lessee be credited toward the Gross Rent, in the order of their due dates, or
applied to the retirement of the Bonds prior to maturity (either by redemption or purchase) in
accordance with the Bond Purchase Agreement.
Section 9.05.
Installation of Lessees Own Machinery and Leased Equipment
. The
Lessee may from time to time, in its sole discretion and at its own expense, install fixtures,
trade fixtures, machinery, equipment, furnishings, and other personal property in the Building or
on the Leased Premises, which may be attached or affixed to the Building or the Leased Premises.
All such fixtures, trade fixtures, machinery, equipment, furnishings, and other personal property
shall remain the sole property of the Lessee, and the Lessee may remove the same from the Building
or the Leased Premises at any time, in its sole discretion and at its own expense. The Lessee may
create any mortgage, encumbrance, lien, or charge on any such fixtures, trade fixtures, machinery,
equipment, furnishings, and other personal property. The Lessor shall not have any interest in or
landlords lien on any such fixtures, trade fixtures, machinery, equipment, furnishings, or
personal property so installed pursuant to this Section, and all such fixtures, trade fixtures,
machinery, equipment, furnishings, and personal property shall be and remain identified as the
property of the Lessee by appropriate tags or other markings.
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Section 9.06.
Reference to Bonds Ineffective after Bonds Paid
. Upon payment in full
of the Bonds, all references in this Lease to the Bonds shall be ineffective, and the Bondholder
shall not thereafter have any rights hereunder, saving and excepting those that shall have
theretofore vested.
[End of Article IX]
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EVENTS OF DEFAULT AND REMEDIES
Section 10.01.
Events of Default Defined
. The following shall be Events of Default
under this Lease, and the terms Event of Default or Default shall mean, whenever they are used
in this Lease, any one or more of the following events:
(a) The Lessees failure to pay the Gross Rent at the times specified therein and
continuing for a period of five (5) days after notice by telegram, or if telegraphic service
is not available, then after notice by mail, in the manner provided in Section 12.02 of this
Lease, given to the Lessee by either the Lessor or the Bondholder, that the payment referred
to in such notice has not been received.
(b) The Lessees breach in any material respect of any representation or warranty
contained in this Lease or the Lessees failure to observe, perform, or comply with any
covenant, condition, or agreement in the Lessee Contracts on the part of the Lessee to be
observed or performed, other than as referred to in subsection (a) of this Section, for a
period of thirty (30) days after written notice specifying such breach or failure and
requesting that it be remedied, given to the Lessee by the Lessor, unless the Lessor shall
agree in writing to an extension of such time prior to its expiration. In the case of any
such breach or default which cannot with due diligence be cured within such thirty (30) day
period, it shall not constitute an Event of Default if corrective action is instituted by
the Lessee within the applicable period and diligently pursued until the breach or default
is corrected.
Section 10.02.
Remedies on Default
. Whenever any Event of Default referred to in
Section 10.01 hereof shall have happened and be subsisting, the Lessor, to the extent permitted by
law, may take any one or more of the following remedial steps:
(a) The Lessor may from time to time take whatever action at law or in equity or under
the terms of this Lease may appear necessary or desirable to collect the rents and other
amounts payable by the Lessee hereunder then due or thereafter to become due, or to enforce
performance and observance of any obligation, agreement, or covenant of the Lessee under
this Lease.
(b) Whether or not the Lessor shall have collected any current damages, the Lessor
shall, at its option, be entitled to recover from the Lessee, and the Lessee shall pay to
the Lessor on demand, as and for liquidated and agreed final damages for the Lessees
default and in lieu of all current damages beyond the date of such demand, an amount equal
to all unpaid installments of Basic Rent and other amounts payable as hereinafter defined if
the Bonds are then outstanding and unpaid, and if any statute or rule of law shall validly
limit the amount of such liquidated final damages to less than the amount agreed upon, the
Lessor shall be entitled to the maximum amount allowable under such statute or rule of law.
The term all unpaid installments of Basic Rent and other amounts payable shall mean an
amount equal to the entire principal amount of the Bonds then
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outstanding, together with any applicable redemption premiums and all interest accrued
or to accrue on and prior to the next succeeding redemption date, and plus any other
payments due or to become due hereunder.
(c) If the Event of Default results from the Lessees failure to pay any amount due
under the PILOT Agreement, then the Lessor shall have the right to terminate this Lease by
giving an additional written notice to the Lessee of the Lessors intention to exercise its
right of termination unless the Event of Default is cured within forty-five (45) days after
the date of the Lessees receipt thereof. If the Event of Default is cured within such
forty-five (45) day period, this Lease shall remain in full force and effect. If the Event
of Default is not cured within such forty-five (45) day period, then the Lessor shall
complete the exercise of its right of termination by execution and delivery of a quitclaim
deed of all of the Lessors right, title, and interest in and to the Project, whereupon the
Lease Term shall end and terminate.
No action taken pursuant to this Section shall relieve the Lessee from its obligation to pay
the Gross Rent, which shall survive any such action, and the Lessor may take whatever action at law
or in equity as may appear necessary and desirable to collect the rents and other amounts then due
and thereafter to become due or to enforce the performance and observance of any obligation,
agreement, or covenant of the Lessee hereunder.
Section 10.03.
Remedies Exclusive
. The remedies herein expressly conferred upon the
Lessor are intended to be exclusive of all other remedies existing at law or in equity or by
statute. Without limiting the generality of the foregoing, and notwithstanding the foregoing
provisions of this Article, and notwithstanding any other term or provision of this Lease, and
notwithstanding any statutory, decisional, or other law to the contrary, in no event shall the
Lessor have any right to terminate this Lease, to enter upon and take possession of the Project, to
judicially obtain the dispossession of the Lessee or the repossession of the Project, or otherwise
to obtain possession of the Project, by reason of the occurrence of any Event of Default by the
Lessee hereunder. No delay or omission to exercise any right or power accruing upon any default
shall impair any such right or power or shall be construed to be a waiver thereof, but any such
right and power may be exercised from time to time and as often as may be deemed expedient. In
order to entitle the Lessor to exercise any remedy reserved to it in this Article, it shall not be
necessary to give any notice, other than such notice as may be herein expressly required. The
Bondholder shall be deemed a third party beneficiary of all covenants and agreements herein
contained.
Section 10.04.
Lessee to Pay Fees and Expenses
. In the event the Lessee should
default under any of the provisions of this Lease and the Lessor should employ attorneys,
accountants, or other experts or incur other expenses for the collection of rents and other amounts
due hereunder or the enforcement of performance or observance of any obligation or agreement on the
part of the Lessee herein contained, the Lessee agrees that it shall on demand therefor pay to the
Lessor the reasonable and actual fees of such attorneys, accountants, or other experts and such
other expenses so incurred by the Lessor. Any attorneys fees required to be paid by the Lessee
under this Lease shall include attorneys and paralegals fees through all proceedings, including,
but not limited to, negotiations, administrative hearings, trials, and appeals.
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Section 10.05.
Waiver of Events of Default
. The Lessor may waive any Event of
Default hereunder and its consequences or rescind any declaration of acceleration of payments of
the rents and other amounts due hereunder. In case of any such waiver or rescission, or in case
any proceeding taken by the Lessor on account of any such Event of Default shall be discontinued or
abandoned or determined adversely to the Lessor, then and in every such case the Lessor and the
Lessee shall be restored to their former position and rights hereunder, but no such waiver or
rescission shall extend to or affect any subsequent or other Event of Default or impair or exhaust
any right, power, or remedy consequent thereon.
Section 10.06.
Force Majeure
.
If by reason of
force majeure
the Lessee is unable in
whole or in part to carry out its agreement on its part herein contained, other than the
obligations on the part of Lessee to pay the Gross Rent, Lessee shall not be deemed in default
during the continuance of such inability. The term
force majeure
as used herein shall mean,
without limitation, the following: acts of God, strikes, lockouts or other industrial disturbances;
act of public enemies, orders or restraints of any kind of the government of the United States of
America or the State or any of their departments, agencies or officials, or any civil or military
authority; insurrections; riots; landslides; earthquakes; fires; storms; droughts; floods; or
explosions.
[End of Article X]
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OPTIONS IN FAVOR OF LESSEE; OPTIONS IN FAVOR OF AUTHORITY
Section 11.01.
General Options to Terminate Lease Term
.
Notwithstanding the
existence of an Event of Default, or an event or circumstance that could, with the passage of time
give rise to an Event of Default, the Lessee shall have, and is hereby granted, the following
options to terminate the Lease Term:
(a) at any time prior to full payment of the Bonds, the Lessee may terminate the Lease
Term by (i) paying to the Bondholder an amount which will be sufficient to pay, retire, and
redeem the Bonds in accordance with the provisions of the Bond Purchase Agreement
(including, without limiting the generality of the foregoing, principal, redemption premium,
if any, and interest to maturity or earliest applicable redemption date, as the case may
be), (ii) in the case of redemption, making arrangements satisfactory to the Lessor for the
giving of the required notice of redemption, (iii) paying to the Lessor any and all sums
then due to the Lessor under this Lease, and (iv) otherwise complying with the provisions of
Section 7.2 of the Bond Purchase Agreement, and
(b) upon full payment of the Bonds and of any and all sums then due to the Lessor under
this Lease prior to the end of the Lease Term, the Lessee may terminate the Lease Term by
giving the Lessor notice in writing of such termination, which shall forthwith become
effective.
At any time within one hundred eighty (180) days after the expiration or sooner termination of
the Lease Term, the Lessee shall also have, and is hereby granted, the option to purchase the
Project for a purchase price of One Dollar ($1.00), which shall be paid directly to the Lessor for
its own account and any and all other sums then due to the Lessor under this Lease. To exercise
such option, the Lessee shall give written notice of exercise to the Lessor. The purchase of the
Project shall be closed within sixty- (60-) days from the date of such notice.
Section 11.02.
Option to Prepay Rent and Redeem Bonds at Prior Optional Redemption
Dates
. The Lessee shall have the option to prepay rent due related to the Bonds and other
amounts payable under this Lease in such manner and amounts as will enable the Lessor to redeem the
Bonds prior to maturity, in whole or in part on any date, as provided in Section 7.2 of the Bond
Purchase Agreement in accordance with the procedures set forth in the Bond Purchase Agreement. The
rents and other amounts payable by the Lessee in the event of its exercise of the option granted
under this Section shall be the amount necessary to pay principal, all interest to accrue to the
redemption date, the applicable redemption premium, as provided in Section 7.2 of the Bond Purchase
Agreement, and any redemption expense.
Section 11.03.
Option to Purchase Unimproved Land
. If no Event of Default under this
Lease shall have occurred and then be continuing, the Lessee shall have, and is hereby granted, the
option to purchase any part of the Leased Premises on which neither the Building nor any of the
Leased Equipment is situated (although transportation or utility facilities may be located
thereon), at any time following the Completion Date and from time to
time thereafter, at and for a purchase price of One Dollar ($1.00), provided that the Lessee furnishes the Lessor
with the following:
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(a) a notice in writing containing (i) an adequate legal description of that portion of
the Leased Premises with respect to which such option is to be exercised, and (ii) a
statement that the Lessee intends to exercise its option to purchase such portion of the
Leased Premises on a dated stated, which shall not be less than thirty (30) days nor more
than one hundred twenty (120) days from the date of such notice,
(b) a certificate of the Lessee to the effect that neither the Building nor the Leased
Equipment are located on the portion of the Leased Premises with respect to which the option
is to be exercised, accompanied by a plat of survey of the Leased Premises certified by a
registered surveyor of the State, depicting (i) the boundaries of the portion of the Leased
Premises with respect to which the option is to be exercised, (ii) all improvements located
on the property surveyed and the relation of the improvements by distances to the boundaries
of the portion of such property with respect to which the option is to be exercised, and
(iii) all easements and rights of way with recording data and instruments establishing the
same, and
(c) an amount of money equal to the purchase price computed as provided in this
Section, to be deposited with the Lessor.
Section 11.04.
No Obligation to Purchase Project
.
The Lessee shall be under no
obligation to purchase the Project.
Section 11.05.
Conveyance on Exercise of Option to Purchase
.
At the closing of any
purchase pursuant to the exercise of any option to purchase granted herein, the Lessor shall upon
receipt of the purchase price deliver to the Lessee documents conveying to the Lessee good and
marketable title (of the same quality as received by the Lessor) to the property being purchased,
as such property then exists, subject to the following: (i) those liens and encumbrances (if any)
to which title to said property was subject immediately following the execution and delivery of the
Bonds but excluding the Lessor Contracts, (ii) those liens and encumbrances created by the Lessee
or to the creation or suffering of which the Lessee consented, and (iii) those liens and
encumbrances resulting from the failure of the Lessee to perform or observe any of the agreements
on its part contained in this Lease.
Section 11.06.
Public Purpose of Option to Purchase
.
The Lessor and the Lessee
acknowledge that the options to purchase the Project granted in this Article are a material
inducement to the Lessee to operate the Project on behalf of the Lessor and that in granting such
options the Lessor is considering the entire transaction as a whole, including the promotion and
expansion for the public good and welfare industry and trade within Cook County and the reduction
of unemployment to the greatest extent possible, and the fact that as a condition to the exercise
of the options all indebtedness with respect to the Project will have been paid in full.
[End of Article XI]
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MISCELLANEOUS
Section 12.01.
Quiet Enjoyment
. The Lessor agrees that so long as the Lessee shall
fully and punctually pay all of the rents and other amounts provided to be paid hereunder by the
Lessee and shall fully and punctually perform all of its other covenants and agreements hereunder,
the Lessee shall peaceably and quietly have, hold, and enjoy the Project during the Lease Term
without hindrance or molestation from parties claiming by, through, or under the Lessor.
Section 12.02.
Notices
. All notices, certificates, or other communications hereunder
shall be sufficiently given and shall be deemed given when mailed by certified mail, postage
prepaid, return receipt requested, addressed as follows:
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If to the Lessor:
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Adel Industrial Development Authority
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201 E. Fifth Street
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P.O. Box 854
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Adel, Georgia 31620-0854
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Attention: Chairman
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with a copy to:
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Howard E. McClain, Esq.
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201 E. Fifth Street
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P.O. Box 854
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Adel, Georgia 31620-0854
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If to the Lessee:
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Sanderson Farms, Inc. (Production Division)
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225 North 13th Avenue
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P.O. Box 988
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Laurel, Mississippi 39441
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Attention: CFO
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Any party named in this Section may, by notice given to each of the others, designate any
additional or different addresses to which subsequent notices, certificates, or other
communications shall be sent.
Section 12.03.
Recording
. This Lease, or an appropriate notice hereof, shall be
recorded in all offices as may at the time be provided by law as the proper place for recordation.
Section 12.04.
Construction and Binding Effect
. This Lease constitutes the entire
agreement of the parties concerning the subject matter hereof and supersedes any prior agreements
with respect thereto. This Lease shall inure to the benefit of and shall be binding upon the
Lessor, the Lessee, and their respective successors and assigns subject, however, to the
limitations contained in Sections 8.03, 9.01, and 9.02.
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Section 12.05.
Severability
. In the event any provision of this Lease shall be held
invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate
or render unenforceable any other provision hereof.
Section 12.06.
Amounts Remaining in Funds
. It is agreed by the parties hereto that
any amounts remaining in the Project Fund or other funds provided for herein upon expiration or
sooner termination of the Lease Term, as provided in this Lease, after payment in full of the Bonds
and all sums due and owing to the Lessor, shall belong to and be paid to the Lessee by the Lessor
as overpayment of rents.
Section 12.07.
Fees Paid by the Lessee
. Except as Section 4.03 hereof permits the
payment or reimbursement thereof, the Lessee shall pay all fees and expenses relating to this
Lease, including but not limited to, the expense of examination of title, premiums of owners title
insurance, costs of all supplemental examinations and certifications of title, any recording fee
and tax upon this Lease, and reasonable and actual attorneys fees of the Lessor and the County.
In case the Lessor, with the written consent of the Lessee, pays or advances any money for fees,
surveys, recording, recording tax, examination of title, an owners title insurance policy,
preparation of documents, any expenses incurred in the completion of this transaction, the payment
of any insurance premiums, encumbrance, tax, assessment, or other charge or lien upon the Project,
or any other amounts necessary for the payment of the cost of improvements, the same shall be
advances payable in accordance with Section 6.07 of this Lease.
Section 12.08.
Amendments, Changes, and Modifications
. This Lease may not be
amended, modified, altered, or terminated, and the observance of any term thereof may not be
waived, except in a writing signed by both the Lessor and the Lessee, and consented to by the
Bondholder.
Section 12.09.
Execution of Counterparts
. This Lease may be executed in several
counterparts, each of which shall be an original and all of which shall constitute but one and the
same instrument.
Section 12.10.
Law Governing Construction of this Lease
. This Lease is prepared and
entered into with the intention that the laws of the State of Georgia, exclusive of such States
rules governing choice of law, shall govern its construction.
Section 12.11.
Covenants Run with Leased Premises
. The covenants, agreements, and
conditions herein contained shall run with the property and premises hereby leased and shall be
binding upon, inure to the benefit of, and be enforceable by the parties hereto and their
respective successors and assigns.
Section 12.12.
No Merger
. There shall be no merger of this Lease or the leasehold
estate created hereby with the fee simple estate in the Project or any part thereof, by reason of
the fact that the same person or entity may acquire, own, or hold, directly or indirectly, this
Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold
estate, and the fee simple estate in the Project or any interest in such fee simple estate, and
this Lease shall not be terminated except as expressly provided herein.
-43-
Section 12.13.
Net Lease
.
This Lease shall be deemed and construed to be a net,
net, net lease, and the Lessee shall pay absolutely net during the Lease Term the rent and all
other payments required hereunder, free of any deductions, without abatement, diminution, or
set-off other than those herein expressly provided.
Section 12.14.
Surrender of Project
.
Except as otherwise provided in this Lease, at
the expiration or sooner termination of the Lease Term, the Lessee agrees to surrender possession
of the Project peaceably and promptly to the Lessor in as good condition as at the commencement of
the Lease Term, excepting only ordinary wear, tear, and obsolescence, and damage by fire or other
casualty or condemnation which the Lessee is not obligated by this Lease to repair.
Section 12.15.
Immunity of Members, Officers, and Employees of Lessor
. No recourse
shall be had for the enforcement of any obligation, covenant, promise, or agreement of the Lessor
contained in this Lease or for any claim based hereon or otherwise in respect hereof or upon any
obligation, covenant, promise, or agreement of the Lessor contained in the Lessor Contracts against
any director, member, officer, or employee, as such, in his individual capacity, past, present, or
future, of the Lessor, or any successor corporation, whether by virtue of any constitutional
provision, statute, or rule of law, or by the enforcement of any assessment or penalty or
otherwise, it being expressly agreed and understood that the Lessor Contracts are solely corporate
obligations of the Lessor payable only from the funds and assets of the Lessor herein specifically
provided to be subject to such obligation and that no personal liability whatsoever shall attach
to, or be incurred by, any director, member, officer, or employee, as such, past, present, or
future, of the Lessor, or of any successor corporation, either directly or through the Lessor, or
any successor corporation, under or by reason of any of the obligations, covenants, promises, or
agreements entered into between the Lessor and the Lessee whether contained in the Lessor Contracts
or to be implied herefrom or therefrom as being supplemental hereto or thereto, and that all
personal liability of that character against every such director, member, officer, and employee is,
by the execution of this Lease and as a condition of and as part of the consideration for the
execution of this Lease, expressly waived and released. The immunity of directors, members,
officers, and employees of the Lessor under the provisions contained in this Section shall survive
the completion of the Project and the termination of this Lease.
[End of Article XII]
-44-
Signatures and Seals
In Witness Whereof
, the Lessor has executed this Lease by causing its name to be
hereunto subscribed by its Chairman and by causing the official seal of the Lessor to be impressed
hereon and attested by its Secretary; and the Lessee has executed this Lease by causing its name to
be hereunto subscribed by its Treasurer and Chief Financial Officer and by causing the corporate
seal of the Lessee to be impressed hereon and attested by its Secretary; all being done as of the
day and year first above written but actually executed by the Lessor on August 14, 2006, and by the
Lessee on August 15, 2006.
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Very truly yours,
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Adel Industrial Development Authority
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(
Seal
)
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By:
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/s/ Ray Brooks
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Chairman
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Attest:
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/s/ Billy A. Barfield
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Secretary
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The foregoing is hereby agreed to as of the date
thereof.
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Sanderson Farms, Inc. (Production Division)
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/s/ D. Michael Cockrell
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Authorized Officer
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-45-
Exhibit A
Description of Leased Premises
PARCEL 1 (Part of Feed Mill Site):
All that tract or parcel of land situate, lying and being in Land Lot 408 in the 9
th
Land District of Cook County, Georgia, containing 97.42 acres and being more particularly described
as follows: Begin at the intersection of the south land lot line of Land Lot 408 with the westerly
right of way of the Southern Railroad; thence South 88 degrees 04 minutes 06 seconds West a
distance of 558.04 feet; thence North 88 degrees 31 minutes 54 seconds West a distance of 1244.92
feet; thence North 19 degrees 31 minutes 41 seconds West a distance of 1457.27 feet; thence North
70 degrees 28 minutes 19 seconds East a distance of 478.27 feet; thence North 19 degrees 31 minutes
41 seconds West a distance of 350.04 feet; thence South 70 degrees 28 minutes 19 seconds West a
distance of 478.27 feet; thence North 19 degrees 31 minutes 41 seconds West a distance of 366.38
feet; thence North 85 degrees 41 minutes 22 seconds East a distance of 72.41 feet; thence South 83
degrees 45 minutes 16 seconds East a distance of 45.49 feet; thence North 12 degrees 57 minutes 59
seconds East a distance of 29.85 feet; thence North 63 degrees 10 minutes 45 seconds East a
distance of 59.69 feet; thence North 27 degrees 52 minutes 39 seconds East a distance of 125.53
feet; thence North 33 degrees 13 minutes 50 seconds East a distance of 94.82 feet; thence North 27
degrees 17 minutes 55 seconds East a distance of 74.95 feet; thence North 57 degrees 58 minutes 15
seconds East a distance of 104.07 feet; thence North 67 degrees 53 minutes 30 seconds East a
distance of 105.35 feet; thence South 77 degrees 36 minutes 03 seconds East a distance of 114.63
feet; thence North 87 degrees 05 minutes 21 seconds East a distance of 57.85 feet; thence South 78
degrees 55 minutes 19 seconds East a distance of 142.84 feet; thence North 79 degrees 28 minutes 57
seconds East a distance of 68.33 feet; thence North 85 degrees 32 minutes 26 seconds East a
distance of 76.51 feet; thence South 68 degrees 44 minutes 41 seconds East a distance of 85.28
feet; thence North 60 degrees 20 minutes 55 seconds East a distance of 36.34 feet; thence North 86
degrees 38 minutes 33 seconds East a distance of 55.38 feet; thence North 55 degrees 23 minutes 36
seconds East a distance of 109.76 feet; thence North 73 degrees 55 minutes 13 seconds East a
distance of 77.07 feet; thence North 71 degrees 55 minutes 11 seconds East a distance of 65.08
feet; thence North 10 degrees 58 minutes 08 seconds East a distance of 50.99 feet; thence North 52
degrees 20 minutes 38 seconds East a distance of 53.41 feet; thence North 72 degrees 00 minutes 06
seconds East a distance of 57.72 feet; thence South 71 degrees 37 minutes 18 seconds East a
distance of 59.90 feet; thence North 25 degrees 43 minutes 40 seconds East a distance of 64.53
feet; thence North 46 degrees 07 minutes 18 seconds East a distance of 64.22 feet; thence South 19
degrees 31 minutes 41 seconds East a distance of 2882.64 feet to the point of beginning.
Said property is depicted as Tract 2 on a plat of survey prepared by Hogan Surveying Company, Inc.
April 30, 2004, revised June 15, 2004 and recorded in Plat File 239, page 4, Cook County Deed
Records. Said plat is by reference herein incorporated into and made a part of this description.
-46-
PARCEL 2 (Part of Feed Mill Site):
All that tract or parcel of land situate, lying and being in Land Lot 421 in the 9
th
Land District of Cook County, Georgia containing 10.30 acres and being more particularly described
as follows: Begin at the intersection of the north land lot line of Land Lot 421 with the westerly
right of way of Southern Railroad; thence South 19 degrees 31 minutes 41 seconds East a distance of
262.32 feet; thence South 88 degrees 04 minutes 06 seconds West a distance of 552.96 feet; thence
North 88 degrees 31 minutes 54 seconds West a distance of 1277.67 feet; thence North 19 degrees 31
minutes 41 seconds West a distance of 260.28 feet; thence South 88 degrees 31 minutes 54 seconds
East a distance of 1244.92 feet; thence North 88 degrees 04 minutes 06 seconds East a distance of
585.04 feet to the point of beginning.
Said property is depicted as Tract 3 on a plat of survey prepared by Hogan Surveying Company, Inc.
April 30, 2004, revised June 15, 2004 and recorded in Plat File 239, page 4, Cook County Deed
Records. Said plat is by reference herein incorporated into and made a part of this description.
PARCEL 3 (Hatchery Site):
All that tract or parcel of land situate, lying and being in Land Lots 361 and 376 in the
9
th
Land District of Cook County, Georgia, containing 16.42 acres and being more
particularly described as follows: To locate the point of beginning commence at the intersection
of the centerlines of Industrial Park Drive and Old Quitman Highway; thence North 86 degrees 42
minutes 01 seconds west a distance of 1248.50 feet to the point of beginning. From said point of
beginning thence South 15 degrees 06 minutes 54 seconds East a distance of 376.55 feet; thence
South 17 degrees 39 minutes 27 seconds East a distance of 315.83 feet; thence South 48 degrees 26
minutes 32 seconds West a distance of 247.42 feet; thence South 48 degrees 25 minutes 46 seconds
West a distance of 231.80 feet; thence North 73 degrees 03 minutes 50 seconds West a distance of
615.42 feet; thence North 06 degrees 56 minutes 10 seconds East a distance of 801.20 feet to the
southerly right of way of Industrial Park Drive; thence along an arc a distance of 22.48 feet which
arc has a radius of 2204.28 feet a chord bearing of North 87 degrees 48 minutes 11 seconds East a
chord length of 22.48 feet; thence North 87 degrees 30 minutes 40 seconds East a distance of 201.16
feet; thence along an arc a distance of 235.19 feet which arc has a radius of 3605.91 feet, a chord
bearing of North 89 degrees 22 minutes 47 seconds East and a chord length of 235.15 feet; thence
South 88 degrees 45 minutes 20 seconds East a distance of 198.06 feet to the point of beginning.
Said tract is depicted on a plat of survey prepared by Hogan Surveying Company, Inc. June 16, 2004
and recorded in Plat File 239, page 3B, Cook County Deed Records, which plat is by reference herein
incorporated into and made a part of this description.
-47-
Exhibit B
Description of Leased Equipment
All fixtures, trade fixtures, equipment, machinery, and other personal property located or to
be located on the Leased Premises, which are acquired by the Lessor with proceeds of its Revenue
Bonds (Sanderson Farms, Inc. (Production Division) Project), Series 2006, dated as of July 1, 2006.
Exhibit C
Project Fund Requisition
[Attached]
Certificate and Requisition for Payment
Date:
,
Draw Request [
]
Sanderson Farms, Inc. (Production Division) (the Lessee) hereby requests, pursuant to the
Lease Agreement, dated as of July 1, 2006 (the Lease), by and between the Lessee and the Adel
Industrial Development Authority (the Lessor), that the following amounts be disbursed to the
following parties for the account of the Lessee from the Project Fund created under the Bond
Purchase Agreement, dated as of July 1, 2006
,
between the Lessor and Sanderson Farms, Inc.
(Production Division), as Purchaser:
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Name of Payee
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Nature of Disbursement
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Amount
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The Lessee does hereby certify to the Lessor that, as of the date hereof, (1) the
representations and warranties of the Lessee in the Lease are hereby ratified and confirmed and (2)
the above-listed items are properly included within the definition Costs of the Project included
within the Lease.
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Sanderson Farms, Inc. (Production Division)
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By:
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Authorized Lessee Representative
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Schedule A
Pending Litigation
None.
-2-
EXHIBIT
10.2
Adel Industrial Development Authority
$17,200,000
Revenue Bonds
(Sanderson Farms, Inc. (Production Division) Project),
Series 2006
Bond Purchase Agreement
Dated as of July 1, 2006
Table of Contents
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Page
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1.
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ISSUANCE OF THE BONDS
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1
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1.1
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Authorization of the Bonds
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1
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1.2
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Terms of the Bonds
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1
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1.3
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Security for the Bonds
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2
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1.4
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Limited Obligation
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2
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2.
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SALE AND PURCHASE OF THE BONDS; ADVANCES
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2
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3.
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CLOSING
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3
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4.
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CONDITIONS TO CLOSING
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3
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4.1
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Representations and Warranties
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3
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4.2
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Performance; No Default
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3
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4.3
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Purchase Permitted by Applicable Law, etc
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4
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4.4
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Lease Agreement
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4
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4.5
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Lien Documents
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4
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4.6
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Proceedings and Documents
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4
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5.
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PROJECT FUND
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4
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5.1
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Creation of the Project Fund
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4
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5.2
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Disbursements
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5
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5.3
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Investments
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5
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5.4
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Depositary
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5
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6.
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REPRESENTATIONS OF THE PURCHASER
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6
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7.
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REDEMPTION OF THE BONDS
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6
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7.1
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Mandatory Redemption
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6
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7.2
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Redemption at Option of Lessee
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6
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7.3
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Partial Redemptions
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7
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7.4
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Maturity
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7
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8.
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COVENANTS
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7
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8.1
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Payment of Principal, Interest, and Premium
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7
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8.2
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Performance of Covenants; Authority of the Issuer
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7
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8.3
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Instruments of Further Assurance
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7
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8.4
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Inspection of Project Books
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8
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8.5
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Rights Under and Possession of the Lease
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8
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8.6
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Recording and Filing
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8
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8.7
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Maintenance of Existence; Compliance with Laws
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9
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9.
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EVENTS OF DEFAULT AND REMEDIES
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9
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9.1
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Events of Default
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9
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Page
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9.2
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Acceleration
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10
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9.3
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Other Remedies
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10
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9.4
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Rescission
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11
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9.5
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No Waivers or Election of Remedies
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11
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10.
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REGISTRATION; TRANSFER; SUBSTITUTION OF THE BOND
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11
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10.1
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Registration of the Bond
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11
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10.2
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Transfer of the Bond
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12
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10.3
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Replacement of the Bonds
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12
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11.
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PAYMENTS ON THE BONDS
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12
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12.
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AMENDMENT AND WAIVER
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13
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12.1
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Requirements
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13
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12.2
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Binding Effect, etc
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13
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12.3
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Lease
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13
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13.
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NOTICES
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13
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14.
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SUBSTITUTION OF PURCHASER
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14
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15.
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INTERPRETATION
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14
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15.1
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Definitions
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14
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15.2
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Construction of Certain Terms
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15
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15.3
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Table of Contents; Titles and Headings
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15
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16.
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MISCELLANEOUS
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15
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16.1
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Successors and Assigns
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15
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16.2
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Payments Due on Non-Business Days
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16
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16.3
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Severability
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16
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16.4
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Construction
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16
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16.5
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Counterparts
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16
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16.6
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Governing Law
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16
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16.7
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No Liability of Issuers Officers
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16
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16.8
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Third Party Beneficiary
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17
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Exhibit A
Form of Bonds
Exhibit B
Form of Investment Letter
Bond Purchase Agreement
July 1, 2006
Sanderson Farms, Inc. (Production Division),
a Mississippi corporation
(the
Purchaser
)
Ladies and Gentlemen:
The Adel Industrial Development Authority (the
Issuer
), a public body corporate and politic
created and existing under the laws of the State of Georgia, agrees with you as follows:
Issuance of the Bonds
Authorization of the Bonds.
The Issuer has duly authorized the issuance and sale of $17,200,000 in principal amount of its
Revenue Bonds (Sanderson Farms, Inc. (Production Division) Project), Series 2006 (the
Bonds
, such
term to include any such Bonds issued in substitution therefor pursuant to Section 10 of this
Agreement). The Bonds shall be substantially in the form set out in Exhibit A, with such changes
therefrom, if any, as may be approved by you and the Issuer. Certain capitalized terms used in
this Agreement are defined in Section 15 of this Agreement; references to an
Exhibit
are, unless
otherwise specified, to an Exhibit attached to this Agreement. Capitalized terms not otherwise
defined herein shall be defined as forth in the Lease Agreement of even date (the
Lease
Agreement
) between the Issuer and Sanderson Farms, Inc. (Production Division) (the
Lessee
), a
Mississippi corporation.
Terms of the Bonds.
The Bonds shall be dated the date of Closing and shall be designated Adel Industrial
Development Authority Revenue Bonds (Sanderson Farms, Inc. (Production Division) Project), Series
2006. The Series 2006 Bonds (the
Bonds
) shall be issued as a single, fully registered Bond
without coupons in an aggregate principal amount not in excess of $17,200,000 and shall be numbered
R-1, substantially in the form set forth in Exhibit A.
The Bonds shall bear interest from the date advances are made under this Agreement on the
outstanding principal amount thereof at the rate per annum of 6.00%, computed on the basis of a
360-day year for the number of days actually elapsed, payable on July 1, 2007, and annually
thereafter on July 1 of each year and shall mature on July 1, 2017 (each such date, a
Payment
Date
), unless earlier called for redemption.
The Bonds shall bear interest on any overdue installment of principal or premium, if any, and,
to the extent permitted by applicable law, on any overdue installment of interest, at the aforesaid
rate.
Security for the Bonds.
As security for the payment of the Bonds, the Issuer hereby assigns and pledges, and grants a
security interest in, all of its right, title, and interest in the Bond Rent and in the amounts
pledged pursuant to Section 5.1 and, pursuant to an Assignment and Security Agreement, dated the
date hereof (the Assignment) between the Issuer and the Purchaser, all of its right, title and
interest in the Lease Agreement (collectively, the
Security
) to the Bondholder, and this
Agreement shall be deemed a security agreement with respect to the security interest so created.
Limited Obligation.
The Bonds shall be special or limited and not general obligations of the Issuer giving rise to
no pecuniary liability of the Issuer, shall be payable solely from the Security, and shall be a
valid claim of the Bondholder only against the Security, which Security is hereby again
specifically pledged and assigned for the payment of the Bonds and shall be used for no other
purpose than to pay the principal of, and premium, if any, and interest on, the Bonds, except as
may be otherwise expressly authorized in the Bond Documents. The Bonds shall not constitute a
general or moral obligation of Cook County nor a debt, indebtedness, or obligation of, or a pledge
of the faith and credit or taxing power of, Cook County or the State of Georgia or any political
subdivision thereof, within the meaning of any constitutional or statutory provision whatsoever.
Neither the faith and credit nor the taxing power of the State of Georgia, Cook County, or any
political subdivision thereof is pledged to the payment of the principal of, or premium, if any, or
interest on, the Bonds or other costs incident thereto. The Issuer has no taxing power. Neither
the members of the Governing Body nor any person executing the Bonds shall be liable personally on
the Bonds by reason of the issuance thereof.
Sale and Purchase of the Bonds; Advances.
Subject to the terms and conditions of this Agreement, the Issuer shall issue and sell the
Bonds to you and you shall purchase from the Issuer, at the Closing provided for in Section 3, the
respective Bonds at the purchase price of 100% of the principal amount thereof. You shall pay the
purchase price of the Bonds by making advances to the Issuer, from time to time on or prior to
December 31, 2016, at the request of the Lessee, upon delivering to the Issuer documents conveying
to the Issuer good and marketable title to the Project, as such property now exists, subject to
those liens and encumbrances (if any) to which title to said property is subject on the date of
delivery of the Bond but excluding the Lessor Contracts. The parties hereto hereby agree and
stipulate, solely for purposes of this Agreement, that the value of the Project is equal to 100% of
the principal amount of the Bonds being purchased by you. All advances shall be immediately
deposited in the Project Fund and shall be held, invested, and disbursed as provided in this
Agreement. The purchase price of the Bonds may be disbursed in one or more advances, but your
obligation to pay the purchase price of the Bonds shall be reduced by each advance with respect to
the Bonds made hereunder, and any purchase price so advanced hereunder may not be repaid and then
re-advanced hereunder. Your obligation hereunder to make advances of the
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purchase price of the Bonds shall expire on December 31, 2016. All advances by you of the
purchase price of the Bonds under this Agreement shall constitute principal advanced under the
Bonds, shall bear interest at the rate provided in Section 1.2 from the dates of the advances until
paid, and shall be secured as provided in Section 1.3. All your rights under the Bonds and the
Bond Documents shall continue in full force and effect with respect to all such advances.
The principal represented by all advances of the purchase price of the Bonds hereunder,
including the date and amount of principal represented by each advance, shall be endorsed by you on
the Schedule of Advances attached to the Bonds with respect to which such advance is being made;
provided, however, that any failure by you to endorse such information on such Schedule shall not
in any manner affect the obligation of the Issuer to make payments of principal and interest in
accordance with the terms of the Bonds. The Issuer hereby irrevocably authorizes and directs you
to enter on the Schedule of Advances attached to the Bonds the date and amount of principal
represented by each advance of purchase price of the Bonds.
Closing.
The sale and purchase of the Bonds shall occur at the offices of Kilpatrick Stockton LLP,
Suite 2800, 1100 Peachtree Street, Atlanta, Georgia 30309, at 10:00 a.m., local time, at a closing
(the
Closing
) on August ___, 2006, or on such other Business Day thereafter on or prior to
December 31, 2016, as may be agreed upon by the Issuer, the Lessee, and you. At the Closing the
Issuer shall deliver to you the Bonds duly executed in the form described in Section 1.2 and
registered in your name (or in the name of your nominees), against delivery by you to the Issuer or
its order of immediately available funds in the amount of the initial advance of the purchase price
therefor, which shall be immediately deposited in the Project Fund. If at the Closing the Issuer
shall fail to tender the Bonds to you as provided above in this Section, or any of the conditions
specified in Section 4 shall not have been fulfilled to your satisfaction, you may, at your
election, be relieved of all further obligations under this Agreement, without thereby waiving any
rights you may have by reason of such failure or such nonfulfillment.
Conditions to Closing.
Unless waived by you in writing, your obligation to purchase and pay for the Bonds at the
Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the
following conditions:
Representations and Warranties.
The representations and warranties of the Issuer and the Lessee in the Lease Agreement shall
be correct when made and at the time of the Closing.
Performance; No Default.
The Issuer and the Lessee shall have performed and complied with all agreements and conditions
contained in this Agreement and the Lease Agreement required to be performed or complied with by
them prior to or at the Closing and after giving effect to the issue and sale of
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the Bonds (and the application of the proceeds thereof as contemplated by the Lease Agreement)
no Event of Default under the Lessor Contracts shall have occurred and be continuing.
Purchase Permitted by Applicable Law, etc.
On the date of the Closing, your purchase of the Bonds shall (i) be permitted by the laws and
regulations of each jurisdiction to which you are subject, (ii) not violate any applicable law or
regulation, and (iii) not subject you to any tax, penalty, or liability (including, without
limitation, Regulation G, T, or X of the Board of Governors of the Federal Reserve System), under
or pursuant to any applicable law or regulation, which law or regulation was not in effect on the
date hereof.
Lease Agreement.
You shall have received in form and substance satisfactory to you original duly executed
counterpart of the Lease Agreement.
Lien Documents.
You shall have received in form and substance satisfactory to you (a) evidence to the effect
that all appropriate filings and other steps then necessary for perfection of the liens and
security interests created by this Agreement and in the Security, as against third party creditors
of and purchasers for value in good faith from the Issuer, have been taken, and (b) certified
copies of Requests for Information or Copies (Form UCC-11), or equivalent reports, listing all
effective financing statements that name the Issuer as debtor and that are filed in Cook County,
Georgia, together with copies of such financing statements, none of which shall cover the
collateral purported to be covered by this Agreement, except as shall be terminated on the date of
the Closing or as shall constitute Permitted Encumbrances.
Proceedings and Documents.
All corporate and other proceedings in connection with the transactions contemplated by this
Agreement and the other Bond Documents and all documents and instruments incident to such
transactions shall be satisfactory to you and your counsel, and you and your counsel shall have
received all such counterpart originals or certified or other copies of such documents as you or
they may reasonably request.
Project Fund
.
Creation of the Project Fund.
There is hereby created by the Issuer and ordered established with the Depositary a trust fund
in the name of the Issuer to be designated the Project Fund. All advances of the purchase price
of the Bonds shall be immediately deposited into the Project Fund. The Depositary hereby accepts
and agrees to perform the duties and obligations as herein specified.
The Issuer hereby grants a security interest in the moneys and investments in the Project Fund
held by the Depositary for the benefit of the Bondholder and this Agreement shall be
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deemed a security agreement with respect to the security interest so created. The Depositary
shall be deemed to be (1) the secured party under the Uniform Commercial Code of Georgia, as
representative of the Bondholder, or (2) a bailee that under the Uniform Commercial Code of Georgia
holds collateral for the benefit of the Bondholder as secured party, in either case with an
obligation to use moneys in the Project Fund solely as provided herein. If as a result of the
occurrence of an Event of Default under this Agreement the Bondholder declares the unpaid principal
balance and accrued interest on the Bonds to be immediately due and payable, the Depositary shall,
upon the written direction of the Bondholder, apply all moneys in the Project Fund to the immediate
payment of the Bonds, in the same manner as a redemption. Any such application shall reduce and
discharge the amount then due and payable on the Bonds to the extent of such application. The
Depositary shall promptly notify the Lessee and the Issuer of the amount of such reduction.
Disbursements.
Moneys in the Project Fund shall be expended in accordance with the provisions of the Lease
Agreement, particularly Sections 4.03 and 4.04 thereof. The Depositary is hereby authorized and
directed to issue its checks for each disbursement required by the aforesaid provisions of the
Lease Agreement. The Depositary shall keep and maintain adequate records pertaining to the Project
Fund and all disbursements therefrom, and the Depositary shall, if requested by the Lessee, file an
accounting thereof with the Issuer and the Lessee.
Investments.
The Depositary shall invest and reinvest any moneys held in the Project Fund at the direction
of the Lessee as provided in the Lease Agreement, particularly Section 4.11 thereof. The
Depositary shall not be required to invest or reinvest any moneys in the Project Fund or any
earnings therefrom unless directed by the Lessee. The Depositary shall not be liable for interest
upon any moneys held in the Project Fund during any period of time that such moneys are uninvested.
Such investments shall be held by or under the control of the Depositary and shall be deemed at
all times a part of the Project Fund, and the interest accruing thereon and any profit realized
therefrom shall be credited to the Project Fund, and any loss therefrom shall be charged against
the Project Fund. The Depositary is directed to sell and convert to cash a sufficient amount of
such investments whenever the cash held in the Project Fund is insufficient to pay a requisition
for payment from the Project Fund when presented. Neither the Depositary nor the Issuer shall be
liable or responsible for any loss resulting from any such investment or resulting from the
redemption or sale of any such investment as herein authorized.
Depositary.
The Company is hereby designated as Depositary of the Project Fund. The Issuer and the
Bondholder may, from time to time, with the prior written consent of the Lessee, designate a
successor Depositary. All moneys received by the Depositary under this Agreement shall, until used
or applied as herein provided, be held in trust for the purposes for which they were received but
need not be segregated from other funds except to the extent required by this Agreement or by law.
In making any disbursement or payment from the Project Fund as provided herein, the Depositary may
rely upon all requisitions, certificates, and other items submitted to it pursuant to
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this Agreement, and the Depositary shall be relieved of all liability with respect to
disbursements or payments made in accordance with this Agreement. The Depositary shall be
protected in acting upon any requisition, certificate, or other item believed to be genuine and
correct and to have been signed or sent by the proper person or persons.
The duties of the Depositary hereunder shall be entirely administrative and not discretionary.
The Depositary shall be obligated to act only in accordance with written directions or written
instructions received by it as provided in this Agreement. The Issuer hereby waives any suit,
claim, demand, or cause of action of any kind that it may have or may assert against the Depositary
arising out of or relating to the execution or performance by the Depositary of this Agreement,
unless such suit, claim, demand, or cause of action is based upon the negligence or willful
misconduct of the Depositary.
Representations of the Purchaser.
You represent that you are purchasing the Bonds for your own account or for one or more
separate accounts maintained by you for investment purposes or for your loan portfolio and not with
a view to the distribution thereof,
provided
that the disposition of your property shall at all
times be within your control. You agree (1) to execute and deliver to the Issuer and the Lessee an
Investment Letter substantially in the form attached hereto as Exhibit B, at or prior to the
Closing, and (2) that the Bonds may not be resold unless the purchaser executes and delivers to the
Issuer and the Lessee an Investment Letter substantially in the form attached hereto as Exhibit B,
at or prior to such resale.
Redemption of the Bonds.
Mandatory Redemption.
The Bonds shall be subject to mandatory redemption by the Issuer prior to maturity on the
earliest available Payment Date from excess moneys in the Project Fund to the extent required in
Section 4.03(j) of the Lease Agreement. If the Bonds are called for redemption in the event
described in the preceding sentence, the Bonds shall be redeemed by the Issuer in a principal
amount equal to the excess moneys in the Project Fund at a redemption price equal to one hundred
percent (100%) of the principal amount being redeemed plus accrued interest to the redemption date,
but without premium or penalty.
Redemption at Option of Lessee.
The Bonds shall be subject to optional redemption by the Issuer upon the written request of
the Lessee prior to maturity, in whole on any date or in part on any Payment Date, and if in part
in amounts not less than $10,000, at a redemption price equal to one hundred percent (100%) of the
principal amount being redeemed plus accrued interest to the redemption date, but without premium
or penalty. As a condition precedent to each optional redemption under this Section, the
Bondholder shall receive written notice of such optional redemption not less than 30 days and not
more than 60 days prior to the date fixed for such redemption. Each such notice shall specify the
date of redemption and the principal amount of the Bonds to be redeemed on
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such date, and the accrued interest (if the same can be calculated) to be paid on the
redemption date with respect to the principal amount being redeemed.
Partial Redemptions.
Any partial redemptions of the Bonds shall be applied to the principal portions due on the
Bonds, and in the ratios of their respective principal amounts to the aggregate principal amount of
the Bonds.
Maturity.
In the case of each redemption of the Bonds pursuant to this Section, the principal amount of
the Bonds to be redeemed shall mature and become due and payable on the date fixed for such
redemption, together with interest on such principal amount accrued to such date and the applicable
premium, if any. From and after such date, unless the Issuer shall fail to pay such principal
amount when so due and payable, together with the interest and premium, if any, as aforesaid,
interest on such principal amount shall cease to accrue.
Covenants.
Payment of Principal, Interest, and Premium.
The Issuer covenants that it will promptly pay or cause to be paid the principal of, and
premium, if any, and interest on, the Bonds at the place, on the dates, and in the manner provided
herein and in the Bonds according to the true intent and meaning thereof, but solely from the
Security. The principal of, and premium, if any, and interest on, the Bonds are payable solely
from the sources as provided herein, which sources are hereby specifically pledged to the payment
thereof in the manner and to the extent specified herein, and nothing in the Bonds or in this
Agreement shall be construed as pledging any other funds or assets of the Issuer.
Performance of Covenants; Authority of the Issuer.
The Issuer covenants that it shall faithfully perform at all times any and all covenants,
undertakings, stipulations, and provisions contained in this Agreement, in the Bonds, and in all
proceedings pertaining thereto. The Issuer represents that it is duly authorized under the
Constitution and laws of the State, including particularly the Act, to issue the Bonds and to
execute this Agreement, and to pledge the Security pledged in the manner and to the extent set
forth herein, that all action required on its part for the issuance of the Bonds and the execution
and delivery of this Agreement have been duly and effectively taken, and that the Bonds in the
hands of the Bondholder are and will be the valid and enforceable obligations of the Issuer
according to the import thereof.
Instruments of Further Assurance.
The Issuer agrees that the Bondholder may defend its rights to the payments and other amounts
due under the Lease against the claims and demands of all persons whomsoever. The Issuer covenants
that it will do, execute, acknowledge, and deliver or cause to be done, executed, acknowledged, and
delivered such agreements and such further acts, instruments, and transfers
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as the Bondholder may reasonably require for the better assuring, transferring, conveying,
pledging, assigning, and confirming unto the Bondholder the Security. The Issuer covenants and
agrees that, except as herein and in the Lease Agreement provided, it has not and will not sell,
transfer, convey, assign, pledge, encumber, grant a security interest in, or otherwise dispose of,
or create or suffer to be created any lien, encumbrance, security interest, or charge upon, any
part of the Security or the income and revenues therefrom or of its rights under the Lease or enter
into any contract or take any action by which the rights of the Bondholder may be impaired.
Inspection of Project Books.
The Issuer covenants and agrees that all books and documents in its possession relating to the
Project and the income and revenues derived from the Project shall at all reasonable times be open
to inspection by such accountants or other agents as the Bondholder may from time to time
designate.
Rights Under and Possession of the Lease.
The Lease, duly executed originals or counterparts of which have been filed with you, set
forth the covenants and obligations of the Issuer and the Lessee, including provisions that
subsequent to the initial issuance of the Bonds and prior to its payment in full, the Lease may not
be effectively amended, changed, modified, altered, or terminated (other than as provided therein)
without the written consent of the Bondholder, and reference is hereby made to the Lease for a
detailed statement of such covenants and obligations of the Lessee under the Lease, and the
Bondholder in its own name or in the name of the Issuer may enforce all rights of the Issuer and
all obligations of the Lessee under and pursuant to the Lease, whether or not the Issuer is in
default hereunder.
So long as the Bonds remain outstanding, and for such longer period when required by the
Lease, the Issuer shall faithfully and punctually perform and observe all obligations and
undertakings on its part to be performed and observed under the Lease. The Issuer covenants to
maintain, at all times, the validity and effectiveness of the Lease and (except as expressly
permitted thereby) shall take no action, shall permit no action to be taken by others, and shall
not omit to take any action or permit others to omit to take any action, which action or omission
might release the Lessee from its liabilities or obligations under the Lease or result in the
surrender, termination, amendment, or modification of, or impair the validity of, the Lease.
The Issuer covenants to diligently enforce all covenants, undertakings, and obligations of the
Lessee under the Lease, and the Issuer hereby authorizes and directs the Bondholder to enforce any
and all of the Issuers rights relating to the payment of the Bond Rent under the Lease on behalf
of the Issuer.
Recording and Filing.
The Short Form Lease and the Assignment shall be recorded and indexed in the real estate
records of the Office of the Clerk of the Superior Court of Cook County, Georgia, and any other
place provided by law as the proper place for the recordation thereof. The security interest of
the Bondholder created by this Agreement shall be perfected by the filing of financing
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statements required to be filed pursuant to the State of Georgia Uniform Commercial Code or by
the taking of possession of appropriate collateral. Such financing or continuation statements
shall be filed from time to time, and the appropriate parties shall take or maintain possession of
appropriate collateral, as is necessary to preserve the security interest of this Agreement.
Maintenance of Existence; Compliance with Laws.
The Issuer shall at all times maintain its corporate existence or assure the assumption of its
obligations under the Lessor Contracts by any other entity succeeding to its powers. The Issuer
shall comply with all valid acts, rules, regulations, orders, and directions of any legislative,
executive, administrative, or judicial body known to it to be applicable to the Lessor Contracts.
Events of Default and Remedies.
Events of Default
.
(a) If any of the following events occur, it is hereby defined as and declared to be and to
constitute a default and an
Event of Default
:
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(1)
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default in the due and punctual payment of any interest on the Bonds,
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(2)
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default in the due and punctual payment of any principal of the Bonds
(or premium thereon, if any), whether at the stated maturity thereof, or upon
proceedings for redemption thereof, or upon the maturity thereof by declaration,
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(3)
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the occurrence of an Event of Default under any of the Lessee
Contracts,
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(4)
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any material breach by the Issuer of any representation or warranty
made in the Lessor Contracts or default in the performance or observance of any
other of the covenants, agreements, or conditions on the part of the Issuer in the
Lessor Contracts or in the Bonds contained,
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(5)
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the issuance of an order of relief by the Bankruptcy Court of the
United States District Court having valid jurisdiction, granting the Issuer relief
under federal bankruptcy law, or the issuance by any other court having valid
jurisdiction of an order or decree under applicable federal or state law providing
for the appointment of a receiver, liquidator, assignee, trustee, or sequestrator
(or other similar official) of the Issuer or any substantial part of its property,
affairs, or assets, and the continuance of any such decree or order unstayed and
in effect for a period of sixty (60) consecutive days, or
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(6)
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the consent by the Issuer to the institution of proceedings in
bankruptcy against it, or to the institution of any proceeding against it under
any federal or state insolvency laws, or to the filing of any petition,
application, or complaint
seeking the appointment of a receiver, liquidator, assignee, trustee,
or sequestrator (or other similar official) of the Issuer or of any substantial
part of its property, affairs, or assets.
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(b) Anything herein to the contrary notwithstanding, no default under Section 9.1(a)(1), (2),
(3), (4), and (6) shall constitute an Event of Default until actual written notice of such default
by registered or certified mail shall be given by the Bondholder to the Lessee and the Issuer, and
the Lessee and Issuer shall have had 30 days after receipt of such notice to correct such default
or cause such default to be corrected and shall not have corrected such default or caused such
default to be corrected within the applicable period; provided, however, if such default be such
that it cannot with due diligence be cured within the applicable period but can be wholly cured
within a period of time not materially detrimental to the rights of the Bondholder, to be
determined conclusively by the Bondholder, it shall not constitute an Event of Default if
corrective action is instituted by the Lessee or the Issuer, as the case may be, within the
applicable period and diligently pursued until the default is corrected in accordance with and
subject to any directions or limitations of time established by the Bondholder.
With regard to any alleged default concerning which notice is given to the Lessee under the
provisions of this Section, the Issuer hereby grants the Lessee full authority for the account of
the Issuer to perform any covenant or obligation alleged in such notice to constitute a default, in
the name and stead of the Issuer with full power to do any and all things and acts to the same
extent that the Issuer could do and perform any such things and acts and with power of
substitution.
In addition, the Bondholder shall give written notice of all other Events of Default by
registered or certified mail to the Lessee, provided, however, such notice shall not be a condition
precedent to the Bondholder exercising any right or remedy granted to it hereunder.
Acceleration.
If an Event of Default has occurred and is continuing, the Bondholder may at any time at its
option, by notice or notices to the Issuer and the Lessee, declare the Bonds to be immediately due
and payable.
Upon the Bonds becoming due and payable under this Section by declaration, the Bonds shall
forthwith mature and the entire unpaid principal amount of the Bonds plus all accrued and unpaid
interest thereon shall all be immediately due and payable, in each and every case without
presentment, demand, protest, or further notice, all of which are hereby waived.
Other Remedies.
Upon the occurrence of an Event of Default, you may, in your discretion, by written notice to
the Issuer and the Lessee, terminate your remaining commitment (if any) hereunder to make any
further advances of purchase price of the Bonds, whereupon any such commitment shall terminate
immediately.
If any Event of Default has occurred and is continuing, and irrespective of whether the Bonds
have become or have been declared immediately due and payable under Section 9.2, the
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Bondholder may
exercise any right, power, or remedy permitted to it by law or under the terms of the Bond
Documents and may proceed to protect and enforce the rights of the Bondholder by an action at law,
suit in equity, or other appropriate proceeding, whether for the specific performance of any
covenant or agreement contained herein, in the other Bond Documents, or in the Bonds, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law or otherwise.
Rescission.
At any time after the Bonds have been declared due and payable pursuant to Section 9.2, the
Bondholder, by written notice to the Lessee and the Issuer, may rescind and annul any such
declaration and its consequences if (a) the Issuer has paid all overdue interest on the Bonds, all
principal of and premium, if any, on the Bonds that are due and payable and are unpaid other than
by reason of such declaration, and all interest on such overdue principal and premium, if any, and
(to the extent permitted by applicable law) any overdue interest in respect of the Bonds, at the
rate specified in the Bonds with respect to overdue payments, (b) all Events of Default, other than
non-payment of amounts that have become due solely by reason of such declaration, have been cured
or have been waived pursuant to Section 11, and (c) no judgment or decree has been entered for the
payment of any monies due pursuant hereto or to the Bonds. No rescission and annulment under this
Section shall extend to or affect any subsequent Event of Default or impair any right or power
consequent thereon.
No Waivers or Election of Remedies.
No course of dealing and no delay or omission on the part of the Bondholder in exercising any
right, power, or remedy shall operate as a waiver thereof or otherwise impair or prejudice the
Bondholders rights, powers, or remedies, but any such right, power, or remedy may be exercised
from time to time and as often as may be deemed expedient. No right, power, or remedy conferred by
this Agreement, by any other Bond Document, or by the Bonds upon the Bondholder shall be exclusive
of any other right, power, or remedy referred to herein or therein or now or hereafter available at
law, in equity, by statute, or otherwise, but each and every such right, power, or remedy shall be
cumulative and shall be in addition to every other right, power, or remedy given under this
Agreement, any other Bond Document, or the Bonds or now or hereafter existing at law, in equity, by
statute, or otherwise.
Registration; Transfer; Substitution of the Bond.
Registration of the Bond.
The Issuer shall keep at its office a register for the registration and registration of
transfers of the Bonds. The name and address of the Bondholder, each transfer thereof, and the
name and address of each transferee of the Bonds shall be registered in such register. Prior to
due presentment for registration of transfer, the Person in whose name the Bonds shall be
registered shall be deemed and treated as the owner and holder thereof for all purposes hereof
(including the receipt of payments of principal of, and premium, if any, and interest on, the
Bonds), whether or not the Bonds shall be overdue, and the Issuer shall not be affected by any
notice or knowledge to the contrary.
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Transfer of the Bond.
Upon surrender of the Bonds at the office of the Issuer for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by the registered owner
of the Bonds or its attorney duly authorized in writing and accompanied by the address for notices
of the transferee of the Bonds, the Issuer shall execute and deliver, at the Lessees expense
(except as provided below), a new Bond in exchange therefor, in a principal amount equal to the
unpaid principal amount of the surrendered Bond. Each such new Bond shall be payable to such
Person as the former Bondholder may request and shall be issued as a single, fully registered Bond
substantially in the form of Exhibit A. Each such new Bond shall be dated and bear interest from
the date to which interest shall have been paid on the surrendered Bond or dated the date of the
surrendered Bond if no interest shall have been paid thereon. The Issuer may require payment of a
sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such
transfer of the Bonds. The Bonds shall not be transferred in a denomination of less than the
unpaid principal amount of the surrendered Bonds. No transfer of the Bonds shall be made until (1)
the transferring Bondholder has caused its interest in the Bond to be endorsed to the order of the
transferee of the Bond and has assigned all of its right, title, and interest in this Agreement and
the Security to such transferee, and (2) the transferee has assumed in writing the transferring
Bondholders obligations under this Agreement and has executed and delivered to the Lessee and the
Issuer an Investment Letter substantially in the form of Exhibit B.
Replacement of the Bonds.
Upon receipt by the Issuer of evidence reasonably satisfactory to it of the ownership of and
the loss, theft, destruction, or mutilation of any Bond, and, in the case of loss, theft, or
destruction, of indemnity reasonably satisfactory to it (
provided
that, if the Bondholder is, or is
a nominee for, you or another Bondholder with a minimum net worth of at least $17,200,000, such
Persons own unsecured agreement of indemnity shall be deemed to be satisfactory), or, in the case
of mutilation, upon surrender and cancellation thereof, the Issuer at the expense of the Lessee
shall execute and deliver, in lieu thereof, a new single, fully registered Bond, dated and bearing
interest from the date to which interest shall have been paid on such lost, stolen, destroyed, or
mutilated Bond or dated the date of such lost, stolen, destroyed, or mutilated Bond if no interest
shall have been paid thereon.
Payments on the Bonds.
All sums becoming due on the Bonds for principal, premium, if any, or interest shall be paid
in lawful money of the United States by the method and at the address specified for such purpose by
the Bondholder in writing to the Lessee and the Issuer, without the presentation or surrender of
the Bonds or the making of any notation thereon, except that upon written request of the Lessee
made concurrently with or reasonably promptly after payment or redemption in full of the Bonds, you
shall surrender the Bonds for cancellation, reasonably promptly after any such request, to the
Lessee. Prior to any sale or other disposition of the Bonds held by you or your
nominee, you shall endorse thereon the amount of principal paid thereon and the last date to
which interest has been paid thereon.
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All payments of principal of the Bonds (whether at maturity or upon redemption), including the
date and amount of each payment, shall be endorsed by you on the Schedule of Payments and
Redemptions attached to the Bonds; provided, however, that any failure by you to endorse such
information on such Schedule shall not in any manner affect the obligation of the Issuer to make
payments of principal and interest in accordance with the terms of the Bonds. The Issuer hereby
irrevocably authorizes and directs you to enter on the Schedule of Payments and Redemptions the
date and amount of each payment of principal of the Bonds.
You shall permit the Issuer or the Lessee at any time during regular business hours to make at
your principal office an appropriate notation on the Bonds of payments of principal thereof, if at
least five days prior thereto the Issuer or the Lessee shall have given written notice of its
intention to do so and if it shall not have received from you a written confirmation that the
requested notation has been made.
In the event that on any date the Issuer shall pay less than the amount then due on the Bonds,
such partial payment shall be applied to the amounts then due in the following order of priority:
(i) reimbursable expenses and indemnities, (ii) accrued interest and premium, if any, on the Bonds,
(iii) principal of the Bonds, and (iv) any other amounts due under the Bonds or the Bond Documents.
Amendment and Waiver.
Requirements.
This Agreement and the Bonds may be amended, changed, and modified, and the observance of any
term hereof or of the Bonds may be waived (either retroactively or prospectively), by the written
agreement of the parties hereto, with (and only with) the prior written consent of the Lessee.
Binding Effect, etc.
Any amendment, change, modification, or waiver consented to as provided in this Section shall
be binding upon you and upon each future Bondholder and upon the Issuer without regard to whether
the Bonds have been marked to indicate such amendment, change, modification, or waiver. No such
amendment, change, modification, or waiver will extend to or affect any obligation, covenant,
agreement, or Event of Default not expressly amended, changed, modified, or waived, or impair any
right consequent thereon.
Lease.
The Issuer shall not amend, change, or modify the Lease, or waive the observance of any term
thereof, without the prior written consent of the Bondholder.
Notices.
All notices, certificates, and other communications provided for hereunder shall be in writing
and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a
recognized overnight delivery service (charges prepaid), or (b) by registered or
-13-
certified mail
with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent to the Bondholder at the address first
specified above or to the Issuer at the following address, or to such other address as any party
hereto shall have specified in writing to the other party:
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Adel Industrial Development Authority
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201 E. Fifth Street
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P.O. Box 854
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Adel, Georgia 31620-0854
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Attention: Chairman
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Notices under this Section will be deemed given only when actually received. A duplicate copy of
each notice, certificate, or other communication given hereunder shall also be given to the Lessee.
Substitution of Purchaser.
You shall have the right to substitute any one of your affiliates as the purchaser of the
Bonds, by written notice to the Issuer and the Lessee, which notice shall be signed by both you and
such affiliate, shall contain such affiliates agreement to be bound by this Agreement and shall
contain a confirmation by such affiliate of the accuracy with respect to it of the representations
set forth in Section 6. Upon receipt of such notice, wherever the word you is used in this
Agreement (other than in this Section), such word shall be deemed to refer to such affiliate in
lieu of you. In the event that such affiliate is so substituted as a purchaser hereunder and such
affiliate thereafter transfers to you the Bonds then held by such affiliate, upon receipt by the
Issuer and the Lessee of notice of such transfer, wherever the word you is used in this Agreement
(other than in this Section ), such word shall no longer be deemed to refer to such affiliate, but
shall refer to you, and you shall have all the rights of the original Bondholder under this
Agreement.
Interpretation.
Definitions.
In addition to the words and terms defined elsewhere herein, the following words and terms
shall have the meanings set forth below. When used herein, such words and terms shall have the
meanings given to them in this Section, unless the context or use clearly indicates otherwise.
Business Day
means any day other than a Saturday, a Sunday, or a day on which commercial
banks in Atlanta, Georgia, are required or authorized to be closed.
Default
means an event or condition the occurrence or existence of which would, with the
lapse of time or the giving of notice or both, become an Event of Default.
Bondholder
means the Person in whose name the Bond is registered on the Bond registration
books kept and maintained by the Issuer.
-14-
Construction of Certain Terms.
For all purposes of this Agreement, except as otherwise expressly provided or unless the
context otherwise requires, the following rules of construction shall apply:
(1) The use of the masculine, feminine, or neuter gender is for convenience only and
shall be deemed and construed to include correlative words of the masculine, feminine, or
neuter gender, as appropriate.
(2) Any defined term used in the singular preceded by any shall be taken to indicate
any number of the members of the relevant class.
(3) All words used herein in the singular or plural shall be deemed to have been used
in the plural or singular where the context or construction so requires. The definitions in
this Agreement are applicable whether the terms defined are used in the singular or the
plural.
(4)
Person
shall mean any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
(5) Or is not exclusive.
(6) All references in this instrument to designated Sections and other subdivisions
are to the designated Sections and other subdivisions of this instrument. The words
herein, hereof, hereto, hereby, and hereunder and other words of similar import
refer to this Agreement as a whole and not to any particular Section or other subdivision.
(7) The term hereafter shall mean after, and the term heretofore shall mean before,
the date of execution and delivery of this Agreement.
Table of Contents; Titles and Headings.
The table of contents, the titles of the sections, and the headings of the subdivisions of
this Agreement are solely for convenience of reference, are not a part of this Agreement, and shall
not be deemed to affect the meaning, construction, or effect of any of its provisions.
Miscellaneous.
Successors and Assigns.
All covenants and other agreements contained in this Agreement by or on behalf of any of the
parties hereto bind and inure to the benefit of their respective successors and assigns (including,
without limitation, any subsequent Bondholder) whether so expressed or not.
-15-
Payments Due on Non-Business Days.
Anything in this Agreement or the Bonds to the contrary notwithstanding, any payment of
principal of, or premium, if any, or interest on, the Bonds that is due on a date other than a
Business Day shall be made on the next succeeding Business Day without including the additional
days elapsed in the computation of the interest payable on such next succeeding Business Day.
Severability.
Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such prohibition or unenforceability
in any jurisdiction shall (to the full extent permitted by law) not invalidate or render
unenforceable such provision in any other jurisdiction.
Construction.
Each covenant contained herein shall be construed (absent express provision to the contrary)
as being independent of each other covenant contained herein, so that compliance with any one
covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with
any other covenant. Where any provision herein refers to action to be taken by any Person, or
which such Person is prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person.
Counterparts.
This Agreement may be executed in any number of counterparts, each of which shall be an
original but all of which together shall constitute one instrument. Each counterpart may consist
of a number of copies hereof, each signed by less than all, but together signed by all, of the
parties hereto.
Governing Law.
This Agreement shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the law of the State of Georgia excluding choice-of-law principles of
the law of such State that would require the application of the laws of a jurisdiction other than
such State.
No Liability of Issuers Officers.
No recourse under or upon any obligation, covenant, or agreement contained in this Agreement,
or in the Bonds, or for any claim based thereon, or under any judgment obtained against the Issuer,
or by the enforcement of any assessment or penalty or otherwise or by any legal or equitable
proceeding by virtue of any constitution, rule of law or equity, or statute or otherwise or under
any other circumstances, under or independent of this Agreement, shall be had against any
incorporator, member, director, or officer, as such, past, present, or future, of the Issuer, or
any incorporator, member, director, or officer of any successor corporation, as such,
-16-
either
directly or through the Issuer or any successor corporation, or otherwise, for the payment for or
to the Issuer or any receiver thereof, or for or to the Bondholder or otherwise, of any sum that
may be due and unpaid by the Issuer under this Agreement or upon the Bonds. Any and all personal
liability of every nature, whether at common law or in equity, or by statute or by constitution or
otherwise, of any such incorporator, member, director, or officer, as such, to respond by reason of
any act or omission on his part or otherwise, for the payment for or to the Issuer or any receiver
thereof, or for or to the Bondholder or otherwise, of any sum that may remain due and unpaid under
this Agreement or upon the Bonds, is hereby expressly waived and released as a condition of and in
consideration for the execution of this Agreement and the issuance of the Bonds.
Third Party Beneficiary.
The Lessee is and shall be deemed to be a third party beneficiary of this Agreement. The
provisions of this Agreement are otherwise solely for the benefit of the Issuer and the Purchaser
and no other Person shall have any rights as a third party beneficiary of any of the provisions
hereof.
[SIGNATURES AND SEALS APPEAR ON FOLLOWING PAGE]
-17-
Signatures and Seals
If you are in agreement with the foregoing, please sign the form of agreement on the
accompanying counterpart of this Agreement and return it to the Issuer, whereupon the foregoing
shall become a binding agreement between you and the Issuer.
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Very truly yours,
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ADEL INDUSTRIAL DEVELOPMENT AUTHORITY
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(
Seal
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By:
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/s/ Ray Brooks
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Chairman
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Attest:
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/s/ Billy A. Barfield
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Secretary
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The foregoing is hereby agreed to as of the date
thereof.
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SANDERSON FARMS, INC.
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(PRODUCTION DIVISION)
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/s/ D. Michael Cockrell
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Authorized Officer
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-18-
THIS BOND AND THE INSTRUMENTS HEREINAFTER DESCRIBED ARE SUBJECT TO AN INVESTMENT LETTER AGREEMENT
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO THE TERMS
OF SUCH INVESTMENT LETTER AGREEMENT AND THE HEREINAFTER DESCRIBED BOND PURCHASE AGREEMENT.
UNITED STATES OF AMERICA
State of Georgia
Adel Industrial Development Authority
Revenue Bonds
(Sanderson Farms, Inc. (Production Division) Project), Series 2006
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Number R-1
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Principal Amount: $17,200,000
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Maturity Date
: July 1, 2017
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Dated
: July 1, 2006
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Registered Owner: Sanderson Farms, Inc. (Production Division)
KNOW ALL MEN BY THESE PRESENTS
that the
Adel Industrial Development Authority
(the Issuer),
a public body corporate and politic duly created and existing under the laws of the State of
Georgia, for value received, hereby promises to pay, but only from the source as hereinafter
provided, to the registered owner shown above, or registered assigns, the principal sum stated
above, or so much of the principal sum stated above as shall have been advanced and shall be
outstanding, as indicated on the Schedule of Advances and the Schedule of Payments and Redemptions
attached to this Bond, payable as provided herein.
The principal represented by all advances of purchase price of this Bond under the hereinafter
defined Bond Purchase Agreement, including the date and amount of principal represented by each
advance, shall be endorsed by the registered owner of this Bond on the Schedule of Advances
attached to this Bond; provided, however, that any failure by the registered owner of this Bond to
endorse such information on such Schedule shall not in any manner affect the obligation of the
Issuer to make payments of principal and interest in accordance with the terms of this Bond. The
Issuer hereby irrevocably authorizes and directs the registered owner of this Bond to enter on the
Schedule of Advances attached to this Bond the date and amount of principal represented by each
advance of purchase price of this Bond.
This Bond shall bear interest from the dates advances are made under the Bond Purchase
Agreement on the outstanding principal amount hereof at the rate per annum of 6%, computed on the
basis of a 360-day year for the number of days actually elapsed.
Interest on this Bond shall be payable on July 1, 2007 and annually thereafter on July 1 of
each year. Principal of this Bond shall be payable on July 1, 2017, unless earlier called for
redemption.
This Bond shall bear interest on any overdue installment of principal and, to the extent
permitted by applicable law, on any overdue installment of interest, at the aforesaid rate.
All sums becoming due on this Bond for principal, premium, if any, and interest shall be paid
in lawful money of the United States by the method and at the address specified for such purpose by
the registered owner of this Bond in writing to the Lessee and the Issuer, without the presentation
or surrender of this Bond or the making of any notation hereon, except that upon the written
request of the Lessee made concurrently with or reasonably promptly after payment or redemption in
full of this Bond, the registered owner of this Bond shall surrender this Bond for cancellation,
reasonably promptly after any such request, to the Lessee. Prior to any sale or other disposition
of this Bond the registered owner of this Bond shall endorse hereon the amount of principal paid
hereon and the last date to which interest has been paid hereon.
All payments of principal of this Bond (whether at maturity or upon redemption), including the
date and amount of each payment, shall be endorsed by the registered owner of this Bond on the
Schedule of Payments and Redemptions attached to this Bond; provided, however, that any failure by
the registered owner of this Bond to endorse such information on such Schedule shall not in any
manner affect the obligation of the Issuer to make payments of principal and interest in accordance
with the terms of this Bond. The Issuer hereby irrevocably authorizes and directs the registered
owner of this Bond to enter on the Schedule of Payments and Redemptions the date and amount of each
payment of principal of this Bond.
THIS BOND SHALL NEVER CONSTITUTE AN INDEBTEDNESS OR GENERAL OBLIGATION OF THE STATE OF
GEORGIA, THE COUNTY OF COOK, GEORGIA, OR ANY OTHER POLITICAL SUBDIVISION OF THE STATE OF GEORGIA,
WITHIN THE MEANING OF ANY CONSTITUTIONAL PROVISION OR STATUTORY LIMITATION WHATSOEVER, NOR A PLEDGE
OF THE FAITH AND CREDIT OR TAXING POWER OF ANY OF THE FOREGOING, NOR SHALL ANY OF THE FOREGOING BE
SUBJECT TO ANY PECUNIARY LIABILITY HEREON. THE ISSUER HAS NO TAXING POWER. THIS BOND SHALL NOT BE
PAYABLE FROM NOR A CHARGE UPON ANY FUNDS OTHER THAN THE REVENUES PLEDGED TO THE PAYMENT HEREOF AND
SHALL BE A LIMITED OR SPECIAL OBLIGATION OF THE ISSUER PAYABLE SOLELY FROM THE FUNDS PROVIDED
THEREFOR IN THE BOND PURCHASE AGREEMENT. NO OWNER OF THIS BOND SHALL EVER HAVE THE RIGHT TO COMPEL
THE EXERCISE OF THE TAXING POWER OF THE STATE OF GEORGIA, THE COUNTY OF COOK, GEORGIA, OR ANY OTHER
POLITICAL SUBDIVISION OF THE STATE OF GEORGIA TO PAY THE PRINCIPAL OF THIS BOND OR THE INTEREST OR
ANY PREMIUM HEREON, OR TO ENFORCE PAYMENT HEREOF AGAINST ANY PROPERTY OF THE FOREGOING, NOR SHALL
THIS BOND CONSTITUTE A CHARGE, LIEN, OR ENCUMBRANCE, LEGAL OR EQUITABLE, UPON ANY PROPERTY OF THE
FOREGOING OTHER THAN THE REVENUES PLEDGED TO THE PAYMENT HEREOF. NEITHER THE MEMBERS OF THE
GOVERNING BODY OF THE ISSUER NOR ANY PERSON EXECUTING THIS BOND SHALL BE LIABLE PERSONALLY ON THIS BOND BY REASON OF THE ISSUANCE HEREOF.
-2-
This Bond is the only Bond of an authorized issue limited in original principal amount to
$17,200,000, authorized to be issued pursuant to a resolution duly adopted by the governing body of
the Issuer for the purpose of financing the costs of acquiring, constructing, and installing land,
buildings, improvements, fixtures, machinery, equipment, and other real and personal property
located within the corporate limits of the County of Cook, Georgia constituting poultry feed mill,
administration, hatchery, and live-haul facilities to be located on a tract of land containing
approximately 125 acres known as Whitehurst Farm and located on US 41 South and adjacent to the
city limits of Adel, Georgia (the Project). The Project will be owned by the Issuer, and
Sanderson Farms, Inc. (Production Division) (the Lessee), a corporation duly formed and existing
under and by virtue of the laws of the State of Mississippi, will lease the Project from the Issuer
pursuant to a Lease Agreement (the Lease Agreement), dated as of July 1, 2006, between the Issuer
and the Lessee. The Lessee is obligated pursuant to the Lease Agreement to pay to the Issuer such
rentals (the Bond Rent) as will always be sufficient to pay the principal of, premium, if any,
and interest on this Bond, as the same mature and become due, and under the Lease Agreement it is
the obligation of the Lessee to pay all expenses of operating and maintaining the Project in good
repair, to keep it properly insured, and to pay all taxes, assessments, and other charges levied or
assessed against or with respect to the Project.
The Issuer issued and delivered this Bond to Sanderson Farms, Inc. (Production Division) (the
Purchaser) pursuant to, and the Purchaser purchased this Bond from the Issuer pursuant to, the
terms and conditions of a Bond Purchase Agreement (the Bond Purchase Agreement) and an Assignment
and Security Agreement (the Security Agreement), each dated as of even date herewith, between the
Issuer and the Purchaser. Pursuant to the Bond Purchase Agreement and the Security Agreement, to
secure the payment of the principal of, premium, if any, and interest on this Bond, the Issuer
assigned and pledged to the Purchaser, and granted a first priority security interest in, all of
its right, title, and interest in the Bond Rent and the Lease Agreement. Reference is hereby made
to Bond Purchase Agreement and the Security Agreement for a description of the security for this
Bond, the provisions, among others, with respect to the nature and extent of the security for this
Bond, the rights, duties, and obligations of the Issuer, the Lessee, and the registered owner of
this Bond, and the provisions regulating the manner in which the terms of Bond Purchase Agreement,
the Security Agreement, the Lease Agreement, and this Bond may be modified, to all of which
provisions the owner of this Bond, on behalf of itself and its successors in interest, assents by
acceptance hereof.
This Bond shall be issued as a single, fully registered Bond without coupons in the original
principal amount set forth on the face hereof. Upon surrender of this Bond at the office of the
Issuer for registration of transfer, duly endorsed or accompanied by a written instrument of
transfer duly executed by the registered owner of this Bond or its attorney duly authorized in
writing and accompanied by the address for notices of each transferee of this Bond, the Issuer
shall execute and deliver, at the Lessees expense (except as provided below), a new Bond in
exchange herefor, in a principal amount equal to the unpaid principal amount of the surrendered
Bond. Each such new Bond shall be payable to such person as the former registered owner of this
Bond may request and shall be issued as a single, fully registered Bond. Each such new
-3-
Bond shall be dated and bear interest from the date to which interest shall have been paid on
the surrendered Bond or dated the date of the surrendered Bond if no interest shall have been paid
hereon. The Issuer may require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of this Bond. This Bond shall not be transferred in
a denomination of less than the unpaid principal amount of the surrendered Bond. No transfer of
this Bond shall be made until (1) the transferring registered owner hereof has assigned all of its
right, title, and interest in the Bond Purchase Agreement to the transferee of this Bond, and (2)
the transferee has assumed in writing the registered owners obligations under the Bond Purchase
Agreement and has executed and delivered to the Lessee and the Issuer an Investment Letter
substantially in the form of Exhibit B to the Bond Purchase Agreement.
This Bond shall be subject to optional redemption by the Issuer upon the written request of
the Lessee prior to maturity, in whole on any date or in part on any scheduled interest payment
date, and if in part in amounts not less than $10,000, at a redemption price equal to one hundred
percent (100%) of the principal amount being redeemed plus accrued interest to the redemption date,
but without premium or penalty. As a condition precedent to each optional redemption pursuant to
the preceding sentence, the registered owner of this Bond shall receive written notice of such
optional redemption not less than 30 days and not more than 60 days prior to the date fixed for
such redemption. Each such notice shall specify the date of redemption, the principal amount of
this Bond to be redeemed on such date, and the accrued interest to be paid on the redemption date
with respect to the principal amount being redeemed.
In the case of each redemption of this Bond, the principal amount of this Bond to be redeemed
shall mature and become due and payable on the date fixed for such redemption, together with
interest on such principal amount accrued to such date and the applicable premium, if any. From
and after such date, unless the Issuer shall fail to pay such principal amount when so due and
payable, together with the interest and premium, if any, as aforesaid, interest on such principal
amount shall cease to accrue.
This Bond is issued pursuant to and in full conformity with a resolution duly adopted by the
governing body of the Issuer under the authority of and in full conformity with an act titled
Development Authorities Law, codified as Chapter 62 of Title 36 of the Official Code of Georgia
Annotated, as amended (the Act). This Bond is not a general obligation of the Issuer but is
payable solely from the Bond Rent. Pursuant to the provisions of the Lease Agreement, Bond Rent
sufficient for the prompt payment when due of the principal of, premium, if any, and interest on
this Bond is to be paid to the registered owner of this Bond for the account of the Issuer and has
been and is hereby again duly pledged for that purpose. The obligations hereunder shall be limited
as provided in Section 36-62-10 of the Act. This Bond is issued by the Issuer to aid in the
financing or refinancing of a project; as such term is defined in the Act, to accomplish the
public purposes of the Act.
In certain events, on the conditions, in the manner, and with the effect set forth in the Bond
Purchase Agreement, the principal of this Bond may become or may be declared due and payable before
the stated maturity hereof, together with interest accrued hereon. Modifications or alterations of
the Bond Purchase Agreement, or of any supplements thereto, may be made only to the extent and in
the circumstances permitted by the Bond Purchase Agreement.
-4-
IT IS HEREBY CERTIFIED, RECITED, AND DECLARED
that all acts, conditions, and things required
to exist, happen, and be performed precedent to and in the issuance of this Bond do exist, have
happened, and have been performed in due time, form, and manner as required by law in order to make
this Bond a valid and legal revenue obligation of the Issuer and that the issuance of this Bond,
together with all other obligations of the Issuer, does not exceed or violate any constitutional or
statutory limitation applicable to the Issuer.
IN WITNESS WHEREOF
, the
Adel Industrial Development Authority
has caused this Bond to be
executed by its Chairman by his manual signature, has caused its official seal to be impressed
hereon, and has caused this Bond to be attested by its Secretary by his manual signature, all as of
July 1, 2006.
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Adel Industrial Development Authority
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By:
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Chairman
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(Issuer Seal)
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Attest:
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Secretary
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SCHEDULE OF ADVANCES
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Date of
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Amount of
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Notation
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Date of
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Amount of
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Notation
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Advance
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Advance
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Made By
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Advance
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Advance
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Made By
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/
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$
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SCHEDULE OF PAYMENTS AND REDEMPTIONS
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Made By
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SCHEDULE OF PAYMENTS AND REDEMPTIONS
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Date of
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Amount of
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Notation
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Payment
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Payment
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Made By
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Made By
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|
ASSIGNMENT AND TRANSFER
FOR VALUE RECEIVED
, the undersigned,
, hereby sells, assigns, and
transfers unto
(Tax Identification or Social Security No.
) the within Bond and all rights thereunder (including all of its right,
title, and
interest in and to the Bond Purchase Agreement and the Lease Agreement referenced therein) and
hereby irrevocably constitutes and appoints attorney to transfer the within Bond on the books kept
for registration thereof, with full power of substitution in the premises.
|
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NOTICE:
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The signature(s) to this assignment must correspond with the name as it appears upon the
face of the within Bond in every particular, without alteration or enlargement or any change
whatsoever.
|
Exhibit B
Form of Investment Letter
Investment Letter
,
Adel Industrial Development Authority
Adel, Georgia
Sanderson Farms, Inc. (Production Division)
Laurel, Mississippi
|
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Re:
|
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$17,200,000 Adel Industrial Development Authority Revenue Bonds (Sanderson
Farms, Inc. (Production Division) Project), Series 2006
|
Ladies and Gentlemen:
In consideration of the sale to the undersigned by the Adel Industrial Development Authority
(the Issuer) of one of the above-captioned Bonds (the Bonds) and in consideration of Sanderson
Farms, Inc. (Production Division) (the Lessee) providing the source and the security for the
payment of the Bonds, the undersigned hereby represents, warrants, covenants, and agrees as
follows:
1. The undersigned is an accredited investor as defined in Rule 501(a) promulgated under the
Securities Act of 1933, as amended (the 1933 Act).
2. The undersigned is purchasing the Bond for investment for its own account and is not
purchasing the Bond for resale or other disposition, and the undersigned has no present intention
of reselling or otherwise disposing of all or any part of the Bond or dividing its interest
therein, but the undersigned reserves the right to sell or otherwise dispose of the Bond as it
chooses. The undersigned agrees that it will not sell, transfer, assign, or otherwise dispose of
the Bond (1) unless it obtains from the purchaser and delivers to the Issuer and the Lessee an
agreement similar in form and substance to this Agreement and (2) except in compliance with the
1933 Act, the Securities Exchange Act of 1934, as amended (the 1934 Act), any rules and
regulations promulgated under either Act, and the applicable securities laws of any other
jurisdiction, and in connection therewith, the undersigned agrees that it shall furnish to any
purchaser of the Bond all information required by applicable law.
3. The undersigned, through its agents and employees, has investigated the poultry feed mill,
administration, hatchery, and live-haul facilities to be located on a tract of land containing
approximately 125 acres known as Whitehurst Farm and located on US 41 South and adjacent to the
city limits of Adel, Cook County, Georgia (the Project) to be financed or refinanced with the
proceeds of the Bond, and has investigated the Lessee, which will lease the Project from the
Issuer. The undersigned acknowledges that it has been furnished with or has been given access,
without restriction or limitation, to all of the underlying documents in
connection with this transaction, the Bonds, the Project, and the Lessee, as well as all other
information that a reasonable, prudent, and knowledgeable investor would desire in evaluating the
purchase of the Bonds The undersigned acknowledges that the Lessee and other knowledgeable parties
have made available to it and its representatives the opportunity to obtain any additional
information which it may desire and the opportunity to ask any questions it may desire of and
receive satisfactory answers from the Lessee concerning the security and the source of payment of
the Bonds, the Project, and the Lessee.
4. The undersigned acknowledges that the Bonds are limited obligations of the Issuer payable
solely from funds paid by the Lessee and from collateral furnished by the Lessee and that the Bonds
will not be a general obligation or indebtedness of the State of Georgia, the County of Cook,
Georgia, or any other political subdivision of the State of Georgia to which the faith and credit
or taxing power of any of the foregoing will be pledged. The undersigned further acknowledges that
the Issuer has no taxing power and receives no appropriations from the County of Cook, Georgia or
any other governmental body and that neither the members of the board of directors of the Issuer
nor any person executing the Bonds will be liable personally on the Bonds by reason of the
execution thereof.
5. In reaching the conclusion that it desires to acquire the Bonds, the undersigned has
carefully evaluated all risks associated with this investment and acknowledges that it is able to
bear the economic risk of this investment. The undersigned, by reason of its knowledge and
experience in financial and business matters, is capable of evaluating the merits and risks of the
investment in the Bonds. The representations in this letter shall not relieve the Lessee from any
obligation to disclose any information required by the documents entered into in connection with
the issuance of the Bonds or required by any applicable law.
6. If the proposal and offer herein contained is satisfactory to each of you, you may so
indicate by having the following acceptance executed by your duly authorized officers and by
returning a copy to us. This Investment Letter and your acceptance will then constitute an
agreement with respect to the matters herein contained as of the date hereof. This Investment
Letter is expressly for your benefit and may not be relied upon by any other party.
|
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Very truly yours,
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By:
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Authorized Officer
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Accepted as of
the date first above written:
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Adel Industrial Development Authority
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By:
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Chairman
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Sanderson Farms, Inc. (Production Division)
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By:
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Title:
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EXHIBIT
10.3
SANDERSON FARMS, INC. AND AFFILIATES
EMPLOYEE STOCK OWNERSHIP PLAN
(As Amended and Restated Effective August 1, 2006)
TABLE OF CONTENTS
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ARTICLE 1 NAME AND EFFECTIVE DATE
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7
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Section 1.1 Name
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7
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Section 1.2 Effective Date
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7
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ARTICLE 2 DEFINITIONS
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7
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Section 2.1 Account
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8
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Section 2.2 Administrative Committee
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8
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Section 2.3 Affiliate
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8
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Section 2.4 Annual Additions
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8
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Section 2.5 Beneficiary
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8
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Section 2.6 Board
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8
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Section 2.7 Break in Service
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8
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Section 2.8 Cash Account
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8
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Section 2.9 Company
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8
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Section 2.10 Compensation
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8
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Section 2.11 Contribution
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9
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Section 2.12 Disqualifying Break in Service
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9
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Section 2.13 Distribution Date
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9
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Section 2.14 Eligible Participant
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9
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Section 2.15 Employee
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9
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Section 2.16 Employer
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9
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Section 2.17 Forfeiture
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9
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Section 2.18 Excess Amount
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9
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Section 2.19 Hour of Service
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9
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Section 2.20 Leased Employee
|
|
|
10
|
|
|
|
|
|
|
Section 2.21 Limitation Year
|
|
|
10
|
|
i
|
|
|
|
|
Section 2.22 Maximum Permissible Amount
|
|
|
11
|
|
|
|
|
|
|
Section 2.23 Named Fiduciary
|
|
|
11
|
|
|
|
|
|
|
Section 2.24 Normal Retirement Age
|
|
|
11
|
|
|
|
|
|
|
Section 2.25 Participant
|
|
|
11
|
|
|
|
|
|
|
Section 2.26 Plan
|
|
|
11
|
|
|
|
|
|
|
Section 2.27 Plan Year
|
|
|
11
|
|
|
|
|
|
|
Section 2.28 Qualifying Employer Security or Securities
|
|
|
11
|
|
|
|
|
|
|
Section 2.29 Related Plan
|
|
|
11
|
|
|
|
|
|
|
Section 2.30 Section 415 Compensation
|
|
|
11
|
|
|
|
|
|
|
Section 2.31 Share means a share of a Qualifying Employer Security
|
|
|
12
|
|
|
|
|
|
|
Section 2.32 Stock Account
|
|
|
12
|
|
|
|
|
|
|
Section 2.33 Suspense Account
|
|
|
12
|
|
|
|
|
|
|
Section 2.34 Termination of Employment or Terminates Employment
|
|
|
12
|
|
|
|
|
|
|
Section 2.35 Total and Permanent Disability
|
|
|
12
|
|
|
|
|
|
|
Section 2.36 Trust Agreement
|
|
|
12
|
|
|
|
|
|
|
Section 2.37 Trustee
|
|
|
12
|
|
|
|
|
|
|
Section 2.38 Trust Fund
|
|
|
12
|
|
|
|
|
|
|
Section 2.39 Year of Service
|
|
|
12
|
|
|
|
|
|
|
Section 2.40 Valuation Date
|
|
|
13
|
|
|
|
|
|
|
ARTICLE 3 ELIGIBILITY AND PARTICIPATION
|
|
|
13
|
|
|
|
|
|
|
Section 3.1 Participation
|
|
|
13
|
|
|
|
|
|
|
Section 3.2 Termination of Participation
|
|
|
13
|
|
|
|
|
|
|
Section 3.3 Notification of Participation
|
|
|
14
|
|
|
|
|
|
|
ARTICLE 4 EMPLOYER CONTRIBUTIONS
|
|
|
14
|
|
|
|
|
|
|
Section 4.1 By Employers
|
|
|
14
|
|
|
|
|
|
|
Section 4.2 Amount of Contribution
|
|
|
14
|
|
|
|
|
|
|
Section 4.3 Limitation on Annual Additions
|
|
|
15
|
|
-ii
|
|
|
|
|
ARTICLE 5 ACCOUNTS; ALLOCATIONS; AND ACCOUNTING
|
|
|
17
|
|
|
|
|
|
|
Section 5.1 Participant Accounts
|
|
|
17
|
|
|
|
|
|
|
Section 5.2 Allocation of Contributions and Forfeitures Among Eligible Participants
|
|
|
17
|
|
|
|
|
|
|
Section 5.3 Allocation of Income, Losses and Expenses
|
|
|
17
|
|
|
|
|
|
|
Section 5.4 Allocation of Dividends
|
|
|
18
|
|
|
|
|
|
|
Section 5.5 Accounting Procedures
|
|
|
19
|
|
|
|
|
|
|
Section 5.6 Voting and Tender Rights Qualifying Employer Securities
|
|
|
19
|
|
|
|
|
|
|
Section 5.7 Annual Statements
|
|
|
20
|
|
|
|
|
|
|
ARTICLE 6 VESTING
|
|
|
20
|
|
|
|
|
|
|
Section 6.1 General
|
|
|
20
|
|
|
|
|
|
|
Section 6.2 Retirement, Death and Disability
|
|
|
21
|
|
|
|
|
|
|
Section 6.3 Breaks in Service; Forfeitures
|
|
|
21
|
|
|
|
|
|
|
Section 6.4 Increase in Vesting
|
|
|
22
|
|
|
|
|
|
|
ARTICLE 7 DISTRIBUTIONS
|
|
|
22
|
|
|
|
|
|
|
Section 7.1 Entitlement to Distribution
|
|
|
22
|
|
|
|
|
|
|
Section 7.2 Method and Time of Distribution
|
|
|
22
|
|
|
|
|
|
|
Section 7.3 Mandatory Distributions
|
|
|
23
|
|
|
|
|
|
|
Section 7.4 Designation of Beneficiary
|
|
|
23
|
|
|
|
|
|
|
Section 7.5 Required Beginning Date
|
|
|
24
|
|
|
|
|
|
|
Section 7.6 Distributions of General Employees Profit Sharing Plan Accounts
|
|
|
24
|
|
|
|
|
|
|
Section 7.7 Rollover Treatment
|
|
|
24
|
|
|
|
|
|
|
Section 7.8 30-Day Notice of Distribution Rights
|
|
|
25
|
|
|
|
|
|
|
Section 7.9 Hardship Distributions
|
|
|
25
|
|
|
|
|
|
|
Section 7.10 Missing Persons
|
|
|
27
|
|
|
|
|
|
|
Section 7.11 Diversification of Investments
|
|
|
27
|
|
|
|
|
|
|
Section 7.12 In-Service Distributions at Age 62
|
|
|
28
|
|
-iii
|
|
|
|
|
ARTICLE 8 SPECIAL PROVISIONS RELATING TO LOANS
|
|
|
29
|
|
|
|
|
|
|
Section 8.1 Exempt Loans
|
|
|
29
|
|
|
|
|
|
|
Section 8.2 Release of Shares from Suspense Account
|
|
|
30
|
|
|
|
|
|
|
Section 8.3 Exempt Loan Repayments
|
|
|
30
|
|
|
|
|
|
|
Section 8.4 Allocation of Released Shares
|
|
|
30
|
|
|
|
|
|
|
Section 8.5 Nonterminable Rights
|
|
|
30
|
|
|
|
|
|
|
Section 8.6 Valuation of Qualifying Employers Securities
|
|
|
32
|
|
|
|
|
|
|
ARTICLE 9 TRUST FUND
|
|
|
32
|
|
|
|
|
|
|
Section 9.1 Trust Agreement
|
|
|
32
|
|
|
|
|
|
|
Section 9.2 Non-Reversion; Exclusive Benefit Clause
|
|
|
32
|
|
|
|
|
|
|
Section 9.3 Powers of the Trustee
|
|
|
32
|
|
|
|
|
|
|
Section 9.4 Trust Agreement Part of the Plan
|
|
|
32
|
|
|
|
|
|
|
Section 9.5 Trustee Purchase of Stock
|
|
|
33
|
|
|
|
|
|
|
ARTICLE 10 ADMINISTRATIVE COMMITTEE
|
|
|
33
|
|
|
|
|
|
|
Section 10.1 Named Fiduciaries
|
|
|
33
|
|
|
|
|
|
|
Section 10.2 Appointment of Administrative Committee
|
|
|
33
|
|
|
|
|
|
|
Section 10.3 Organization and Operation of Administrative Committee
|
|
|
34
|
|
|
|
|
|
|
Section 10.4 Responsibilities and Powers of Administrative Committee
|
|
|
34
|
|
|
|
|
|
|
Section 10.5 Individual and Shared Responsibilities of Named Fiduciaries
|
|
|
35
|
|
|
|
|
|
|
Section 10.6 Employment of Advisers
|
|
|
35
|
|
|
|
|
|
|
Section 10.7 Fiduciary in More Than One Capacity
|
|
|
35
|
|
|
|
|
|
|
Section 10.8 Power to Construe and Interpret Plan
|
|
|
35
|
|
|
|
|
|
|
Section 10.9 Indemnity Agreement
|
|
|
35
|
|
|
|
|
|
|
Section 10.10 Costs
|
|
|
36
|
|
|
|
|
|
|
Section 10.11 Application and Forms for Benefits
|
|
|
36
|
|
|
|
|
|
|
Section 10.12 Claims for Benefits
|
|
|
36
|
|
|
|
|
|
|
Section 10.13 Denial of Claims
|
|
|
36
|
|
|
|
|
|
|
-iv
|
|
|
|
|
Section 10.14 Appeal of Denied Claim
|
|
|
37
|
|
|
|
|
|
|
Section 10.15 Claims, Notices, Etc
|
|
|
38
|
|
|
|
|
|
|
ARTICLE 11 MODIFICATIONS FOR TOP HEAVY PLANS
|
|
|
38
|
|
|
|
|
|
|
Section 11.1 Application of Article
|
|
|
38
|
|
|
|
|
|
|
Section 11.2 Definitions
|
|
|
38
|
|
|
|
|
|
|
Section 11.3 Amounts Included for Computation Purposes
|
|
|
39
|
|
|
|
|
|
|
Section 11.4 Accelerated Vesting
|
|
|
39
|
|
|
|
|
|
|
Section 11.5 Minimum Contributions
|
|
|
40
|
|
|
|
|
|
|
Section 11.6 Modification of Top-Heavy Rules
|
|
|
40
|
|
|
|
|
|
|
ARTICLE 12 AMENDMENT, MERGER, CONSOLIDATION OR TRANSFER OF ASSETS; TERMINATION OR
DISCONTINUANCE
|
|
|
41
|
|
|
|
|
|
|
Section 12.1 Amendment
|
|
|
41
|
|
|
|
|
|
|
Section 12.2 Merger, Consolidation, or Transfer of Assets
|
|
|
42
|
|
|
|
|
|
|
Section 12.3 Termination; Discontinuance of Contributions
|
|
|
42
|
|
|
|
|
|
|
ARTICLE 13 MISCELLANEOUS
|
|
|
42
|
|
|
|
|
|
|
Section 13.1 Nonalienation of Benefits
|
|
|
42
|
|
|
|
|
|
|
Section 13.2 No Guarantee of Employment
|
|
|
43
|
|
|
|
|
|
|
Section 13.3 Authorization to Withhold Taxes
|
|
|
43
|
|
|
|
|
|
|
Section 13.4 Delegation of Authority by Employer
|
|
|
43
|
|
|
|
|
|
|
Section 13.5 Number and Gender
|
|
|
43
|
|
|
|
|
|
|
Section 13.6 Legal Actions
|
|
|
43
|
|
|
|
|
|
|
Section 13.7 Delays in Distribution
|
|
|
44
|
|
|
|
|
|
|
Section 13.8 Plan Document Location
|
|
|
44
|
|
|
|
|
|
|
Section 13.9 Plan Terms Control
|
|
|
44
|
|
|
|
|
|
|
Section 13.10 Severability
|
|
|
44
|
|
|
|
|
|
|
Section 13.11 Governing Law
|
|
|
44
|
|
|
|
|
|
|
ARTICLE 14 CONCERNING QUALIFIED MILITARY SERVICE
|
|
|
44
|
|
-v
|
|
|
|
|
ARTICLE 15 MINIMUM DISTRIBUTION REQUIREMENTS
|
|
|
45
|
|
|
|
|
|
|
Section 15.1 General Rules
|
|
|
45
|
|
|
|
|
|
|
Section 15.2 Time and Manner of Distribution
|
|
|
45
|
|
|
|
|
|
|
Section 15.3 Required Minimum Distributions During Participants Lifetime
|
|
|
46
|
|
|
|
|
|
|
Section 15.4 Required Minimum Distributions After Participants Death
|
|
|
47
|
|
|
|
|
|
|
Section 15.5 Definitions
|
|
|
48
|
|
|
|
|
|
|
Section 15.6 Required Beginning Date
|
|
|
48
|
|
-vi
SANDERSON FARMS, INC. AND AFFILIATES
EMPLOYEE STOCK OWNERSHIP PLAN
(As Amended and Restated Effective August 1, 2006)
PREAMBLE
The Sanderson Farms, Inc. and Affiliates Employee Stock Ownership Plan (formerly the Profit
Sharing Retirement Plan and Trust) (the
Plan)
was adopted by Sanderson Farms, Inc. (the
Company) and Sanderson Farms, Inc. (Processing Division) effective January 1, 1972. Effective
January 1, 1972, the Plan was converted into a stock bonus plan and an employee stock ownership
plan, within the meaning of Section 4975(e)(7) of the Code.
Effective November 1, 1989, the Plan was amended and restated to effect numerous technical
changes and to ensure the Plans qualification under the applicable provisions of the Code,
including the Tax Reform Act of 1986, and ERISA.
Effective November 1, 1993, the General Employees Profit Sharing Retirement Plan and Trust
of Sanderson Farms, Inc. and Affiliates (the General Employees Profit Sharing Plan) merged into
this Plan, and this Plan was amended to reflect the merger.
Effective November 1, 1997, the Plan was again amended and restated, to comply with certain
changes in federal law.
Effective August 1, 2006, the Plan is amended and restated as set forth herein to make certain
design and technical changes.
ARTICLE 1
NAME AND EFFECTIVE DATE
Section 1.1
Name
.
This Plan shall be known as the Sanderson Farms, Inc. and Affiliates Employee Stock Ownership Plan.
Section 1.2
Effective Date
.
The original effective date of the Plan is January 1, 1972. The effective date of this amendment
and restatement is August 1, 2006.
ARTICLE 2
DEFINITIONS
The following terms have the meanings herein which are specified below unless the context
otherwise requires:
- 7 -
Section 2.1
Account
means a Participants Cash Account or Stock Account.
Section 2.2
Administrative Committee
means the Administrative Committee appointed by the Company as provided in Section 10.1 hereof.
The persons constituting the Administrative Committee are herein referred to as Administrative
Committee Members.
Section 2.3
Affiliate
means the Employer and any corporation under common control (as defined in Section 414(b) of the
Code) with the Employer; any trade or business (whether or not incorporated) under common control
(as defined in Section 414(c) of the Code) with the Employer; any organization (whether or not
incorporated) that is a member of an affiliated service group (as defined in Section 414(m) of the
Code) that includes the Employer; and any other entity required to be aggregated with the Employer
pursuant to Treasury Regulations under Section 414(o) of the Code.
Section 2.4
Annual Additions
means
the sum of the following amounts credited to a Participants Accounts and to any accounts of
the Participant under a Related Plan for any Limitation Year:
(a) Employer contributions (including any contributions hereunder used to repay an Exempt
Loan);
(b) Employee contributions;
(c) Forfeitures; and
(d) Amounts described at Sections 415(l)(1) and 419(A)(d)(2) of the Code.
Section 2.5
Beneficiary
means a person who is entitled to a distribution hereunder upon the death of a Participant.
Section 2.6
Board
means the Board of Directors of the Company.
Section 2.7
Break in Service
means a Plan Year during which an Employee fails to complete more than 500 Hours of Service. For
purposes of determining an Employees vested percentage hereunder, the computation period shall be
the Plan Year.
Section 2.8
Cash Account
means the Account of a Participant which reflects his interest under the Plan attributable to Trust
Fund assets other than Qualifying Employer Securities.
Section 2.9
Company
means Sanderson Farms, Inc.
Section 2.10
Compensation
means, with respect to an Employee, all taxable remuneration received, except performance incentive
awards, from the Employer in the whole or part of a Plan Year in which the Employee is a
Participant hereunder, increased by any amounts that are not currently included in the Employees
gross income by reason of Sections 125, 132(f), 402(a)(8) or 402(h)(1)(B) of the Code.
Compensation of any Employee shall not include any part of the Contributions to the Trust Fund
hereunder, or to any other employee pension benefit plan or employee welfare benefit plan or trust
in connection therewith, now or hereafter adopted or any
- 8 -
amounts in respect of any options to
purchase stock granted Employees. No Employee shall be deemed to have Compensation for a Plan Year
in excess of two hundred thousand dollars ($200,000) as adjusted in accordance with the provisions
of Section 401(a)(17)(B). The cost-of-living adjustment in effect for a calendar year shall apply
to the annual compensation limit of Section 401(a)(17)(B) for the Plan Year that begins with or
within such calendar year.
Section 2.11
Contribution
means any Employer contribution made hereunder pursuant to Article 4 hereof.
Section 2.12
Disqualifying Break in Service
means a consecutive number of Breaks in Service equal to the greater of (a) five (5), or (b) the
number of an Employees Years of Service prior to such consecutive Breaks in Service (excluding any
Years of Service disregarded hereunder because of prior Breaks in Service).
Section 2.13
Distribution Date
means each January 31, April 30, July 31 or October 31.
Section 2.14
Eligible Participant
means, with respect to a Plan Year, a Participant who is an Employee on the last day of the Plan
Year.
Section 2.15
Employee
means each person who is employed as a common law employee by the Employer. For purposes of
Sections 2.19, 2.20, 2.24, and 2.35 hereof, the term Employee means each person employed as a
common law employee of any Affiliate.
Section 2.16
Employer
means the Company, Sanderson Farms, Inc. (Production Division), Sanderson Farms, Inc. (Processing
Division) and Sanderson Farms, Inc. (Foods Division), all of which are Mississippi corporations,
and any domestic Affiliate that adopts this Plan with the consent of the Board. As the context
requires, the term Employer as used herein shall apply collectively to all Employers under the
Plan or singly to an Employer.
Section 2.17
Forfeiture
means the nonvested portion of a Participants Account balances forfeited under Section 6.3 hereof.
Section 2.18
Excess Amount
means the excess of the amount of a Participants Annual Additions for a Limitation Year over the
Maximum Permissible Amount for the Limitation Year.
Section 2.19
Hour of Service
means:
(a) Each hour:
(1) For which an Employee is paid, or entitled to payment, for the performance of duties for
the Employer or any Affiliate during the applicable computation period;
(2) For which an Employee is paid, or entitled to payment, by the Employer or any Affiliate on
account of a period of time during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence. Notwithstanding the preceding
sentence, no more than five hundred one (501) Hours of Service
- 9 -
are required to be credited under
this paragraph to an Employee on account of any single continuous period during which the Employee
performs no duties (whether or not such period occurs in a single computation period).
(3) For which back pay, irrespective of mitigation of damages, is either awarded or agreed to
by the Employer or any Affiliate. The same Hours of Service shall not be credited both under
paragraph (a)(1) or (2) above, as the case may be, and under this paragraph (a)(3).
(b) Where an Employee is credited with Hours of Service under (a)(2) above, the number of
Hours of Service to be credited and the computation period to which such Hours of Service shall be
credited shall be determined under Title 29, Code of Federal Regulations, Section 2530.200b-2(b)
and (c), which regulation is hereby incorporated into this Plan by reference.
(c) Solely for purposes of determining whether an Employee has incurred a Break in Service,
each hour of such Employees customary work period during an absence that begins after December 31,
1984, and that is due to (1) pregnancy of the Employee; (2) birth of a child of the Employee; (3)
placement of a child in connection with the adoption of a child by the Employee; or (4) caring for
a child by the Employee during the period of birth or placement for adoption, shall be considered
an Hour of Service. Notwithstanding the foregoing provisions:
(1) Hours of Service described in this paragraph (c) shall be credited to the Plan Year in
which a maternity or paternity absence begins if necessary to prevent a Break in Service in that
Plan Year, otherwise all such Hours of Service to be credited pursuant to this paragraph (c) shall
be credited to the next following Plan Year to the extent, if any, necessary to assure that the
Employee will not suffer a Break in Service in such following Plan Year;
(2) The Administrative Committee shall have the right as a condition precedent to providing
credit under this paragraph (c) to require the Employee to certify, on such written form as may be
provided by the Administrative Committee, that the Employers absence was for a reason permitted
under this paragraph (c), to require the Employee to supply information relating to the number of
normal work days for which there was an absence under this paragraph (c), and to verify the
correctness of such certification by any reasonable means; and
(3) The total number of Hours of Service required to be credited under this paragraph (c)
shall not exceed five hundred one (501) Hours of Service.
Section 2.20
Leased Employee
means any individual (other than a common law employee of the Employer) who, pursuant to an
agreement between the Employer and another person (the leasing organization), (a) has performed
services for the Employer (or for the Employer and any related person determined in accordance with
Section 414(n)(6) of the Code), (b) the services are performed on a substantially full-time basis
for a period of at least one year, and (c) the services are performed under the primary direction
and control of the Employer.
Section 2.21
Limitation Year
means the twelve (12)-month period ending each October 31. All qualified plans maintained by the
Employer shall use the same Limitation Year.
- 10 -
Section 2.22
Maximum Permissible Amount
means:
(a) With respect to a Participant, except to the extent permitted under Section 414(v) of the
Code, if applicable, the lesser of:
(1) $40,000, as adjusted for increases in the cost-of-living under Section 415(d) of the Code;
or
(2) 100% of the Participants Section 415 Compensation.
(b) The compensation limit referred to in paragraph (a)(2) above shall not apply to any
contribution for medical benefits after separation from service (within the meaning of Sections
401(h) or 419A(f)(2) of the Code) which is otherwise treated as an Annual Addition.
Section 2.23
Named Fiduciary
Means a named fiduciary, within the meaning of Section 402(a)(2) of ERISA.
Section 2.24
Normal Retirement Age
means age sixty five (65). Notwithstanding any provision of the Plan to the contrary, a
Participant shall be 100% vested in his Accounts upon attainment of Normal Retirement Age while an
Employee.
Section 2.25
Participant
means each Employee who has become a participant in the Plan under Article 3 hereof and any former
Employee who has an Account balance hereunder.
Section 2.26
Plan
means this Sanderson Farms, Inc. and Affiliates Employee Stock Ownership Plan, as amended from time
to time. The Plan is a stock bonus plan intended to be qualified under Section 401(a) of the Code
and an employee stock ownership plan, within the meaning of Section 4975(e)(7).
Section 2.27
Plan Year
means the fiscal year ending October 31.
Section 2.28
Qualifying Employer Security or Securities
means any share of capital stock now or hereafter issued by the Company.
Section 2.29
Related Plan
means a defined contribution plan intended to be qualified plan under Section 401(a) of the Code
maintained or established by an Affiliate.
Section 2.30
Section 415 Compensation
means wages within the meaning of Section 3401(a) of the Code (for the purposes of income tax
withholding at the source) but determined without regard to any rules that limit the remuneration
included in wages based on the nature or location of the employment or the services performed (such
as the exception for agricultural labor in Section 340(a)(2) of the Code). Section 415
Compensation shall include any elective deferral (within the meaning of Section 402(g)(3) of the
Code made by the Employer on behalf of an Employee and any amount contributed or deferred by the
Employer at the election of the Employee which is not includable in the Employees gross income by
reason of Section 125 or 132(f)(4) of the Code. Section 415 Compensation shall include only that
compensation which is actually paid to a Participant during a Plan Year and shall exclude any
amount in excess of $200,000, as adjusted by the Secretary in accordance with Section 401(a)(17)(B)
of the Code.
- 11 -
The cost-of-living adjustment in effect for a calendar year shall apply to the annual
compensation limit of Section 401(a)(17)(B) for the Plan Year that begins with or within such
calendar year.
Section 2.31
Share
means a share of a Qualifying Employer Security.
Section 2.32
Stock Account
means the Account of a Participant which reflects his interest under the Plan attributable to Trust
Fund assets that are Qualifying Employer Securities.
Section 2.33
Suspense Account
means the account established pursuant to Article 8 hereof to which shall be credited unallocated
Shares acquired with the proceeds of an Exempt Loan.
Section 2.34
Termination of Employment
or
Terminates Employment
means an Employees termination of employment with the Employer and the Affiliates.
Section 2.35
Total and Permanent Disability
means a physical or mental condition of a Participant resulting from a bodily injury or disease or
mental disorder suffered while an Employee which renders the Participant eligible to receive Social
Security total disability benefits. Determination of eligibility to receive Social Security total
disability benefits must have an effective date of disability on or before the date of the
Participants Termination of Employment, and the Participant must give notice to the Employer of
such determination within ninety (90) days after the Participant receives official notice of the
determination from the Social Security Administration.
Section 2.36
Trust Agreement
means the Employee Stock Ownership Plan Trust Agreement, effective November 1, 1993, between the
Trustee named therein and the Company, made and entered into for the establishment of a trust to
receive all Contributions which may be made to the order of the Trustee under the Plan, and any and
all amendments of the Trust Agreement.
Section 2.37
Trustee
mean the trustee(s) named under the Trust Agreement and its duly appointed successors.
Section 2.38
Trust Fund
means all cash, securities and other property held by the Trustee pursuant to the terms of the
Trust Agreement, together with any income therefrom.
Section 2.39
Year of Service
means a computation period in which an Employee completes at least one thousand (1,000) Hours of
Service.
(a) For purposes of determining an Employees eligibility to participate hereunder, an
Employees first computation period shall be the twelve (12)-month period beginning on the
Employees date of hire by the Employer. The second and all subsequent computation periods shall
be the Plan Year, beginning with the first Plan Year beginning after the Employees employment
commencement date.
(b) For purposes of determining an Employees vested percentage under Section 6.1 hereof, the
computation period shall be the Plan Year. If, however, an Employee does not complete one thousand
(1,000) Hours of Service during the Plan Year in which he was first hired by the Employer or during
the next following Plan Year, but completes one thousand (1,000) Hours of Service during the twelve
(12) month period beginning on his date of hire by
- 12 -
the Employer, the Employee shall be credited
with one (1) Year of Service under this paragraph (b) for such twelve (12) month period.
Section 2.40
Valuation Date
means the last day of each Plan Year and any other date on which a special valuation is made, as
designated by the Administrative Committee.
ARTICLE 3
ELIGIBILITY AND PARTICIPATION
Section 3.1
Participation
.
(a) Each Employee or former Employee who was a Participant on July 31, 2006, shall be a
Participant on August 1, 2006, if he is an Employee or has an Account balance on such date.
(b) Each other Employee who has completed one (1) Year of Service and has attained twenty-one
(21) years of age shall become a Participant on the date on which the Employee satisfies the
foregoing age and service requirements, provided that he is an Employee on such date.
(c) Notwithstanding (a) and (b) above, the following individuals shall not be eligible to
participate in the Plan:
(1) An Employee who is included in a unit of Employees covered by an agreement which the
Secretary of Labor finds to be a collective bargaining agreement between Employee representatives
and the Employer if there is evidence that retirement benefits were the subject of good faith
bargaining between such Employee representatives and such one or more of the Employers, unless the
collective bargaining agreement expressly permits the Employees participation hereunder.
(2) A Leased Employee; or
(3) Any individual who is classified as an independent contractor by an Employer, regardless
of the classification placed on such person by the Internal Revenue Service or other governmental
agency or a court of competent jurisdiction.
Section 3.2
Termination of Participation
.
(a) Each Participant shall remain a Participant until he Terminates Employment and receives a
distribution of the entire amount of his Account balances. In the event that a Participant
Terminates Employment and is subsequently re-employed as an Employee by the Employer, subject to
Section 3.1(c) hereof, he shall resume active participation in the Plan on the date of his
re-employment. Notwithstanding the preceding, if a Participant Terminates Employment when he has a
vested percentage of zero under Section 6.1 hereof and is reemployed as an Employee of the Employer
after incurring a Disqualifying Break in Service, he
- 13 -
shall be required to satisfy the service
requirement of Section 3.1 hereof before he can resume active participation in the Plan.
(b) If an Employee Terminates Employment prior to becoming a Participant and is subsequently
re-employed by the Employer, the Employee must satisfy the eligibility requirements of 3.1 hereof
to become a Participant. The Employees prior Years of Service shall be counted in determining
whether the Employee satisfies the service requirements of Section 3.1(b) hereof if the Employee is
re-employed before incurring a Disqualifying Break in Service.
Section 3.3
Notification of Participation
.
The Employers shall notify each Eligible Employee of his participation in the Plan no later
than the expiration of ninety (90) days following his first Plan Year of participation.
ARTICLE 4
EMPLOYER CONTRIBUTIONS
Section 4.1
By Employers
.
All Contributions under the Plan shall be made by the Employer, and no Contributions shall be
required or permitted of any Employee.
Section 4.2
Amount of Contribution
.
(a) Subject to the conditions and limitations of the Plan, including Section 4.3 hereof,
Contributions shall be made by the Employer to the Trust Fund for each Plan Year in cash or in
Qualifying Employer Securities in an amount equal to the sum of the following:
(1) Such amount, if any, as shall be determined by the Boards of Directors of the Company and
the Employers; and
(2) Such amount, if any, as shall be required to permit the Trustee to meet the obligations of
the Plan under any Exempt Loan.
(b) Contributions, if any, under the Plan for each Plan Year shall be paid to the Trust Fund
not later than the due date for filing the Employers federal income tax return for the Plan Year,
including any extensions on such due date; provided, however, that Contributions shall be made at
such times as to permit the Trustee to meet the Plans repayment obligations under any Exempt Loan.
(c) In the event that a Contribution is paid to the Trust Fund by reason of a mistake of fact
as determined in good faith by the Employer, upon the Employers request made within one (1) year
after the payment to the Trust Fund, the Administrative Committee shall promptly direct the Trustee
to return the Contribution to the Employer.
(d) All Contributions to the Plan are conditioned upon their deductibility under Section 404
of the Code. If a deduction for a Contribution is disallowed, upon the
- 14 -
Employers request made
within one (1) year after the disallowance, the Administrative Committee shall promptly direct the
Trustee to return the Contribution to the Employer.
Section 4.3
Limitation on Annual Additions
.
(a) (1) If a Participant does not participate in a Related Plan, then the amount of Annual
Additions which may be credited to the Participants Accounts for any Limitation Year shall not
exceed the Maximum Permissible Amount. If a Contribution otherwise allocable to the Participants
Accounts would cause the Participants Annual Additions
for the Limitation Year to exceed the Maximum Permissible Amount, then the amount of the
Contribution otherwise allocable to the Participants Accounts shall be reduced so that the
Participants Annual Additions for the Limitation Year will equal the Maximum Permissible Amount.
(2) Prior to determining a Participants Compensation for a Limitation Year, the Employer may
determine the Maximum Permissible Amount for a Participant on the basis of a reasonable estimation
of the Participants Compensation for the Limitation Year. As soon as is administratively feasible
after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will
be determined on the basis of the Participants Compensation for the Limitation Year. If there is
an Excess Amount, it will be disposed of as follows:
(A) If the Participant is an Employee at the end of the Limitation Year, then the Excess
Amount in the Participants Accounts will be used to reduce the Contributions
(including
-
Forfeitures) allocated thereto for such Participant in the next Limitation
Year, and each succeeding Limitation Year if necessary; or
(B) If the Participant is not an Employee at the end of the Limitation Year, then the Excess
Amount will be held unallocated in a suspense account and applied to reduce Contributions
(including Forfeitures) for Eligible Participants in the next Limitation Year, and each succeeding
Limitation Year if necessary.
(b) If a suspense account is in existence at any time during a Limitation Year pursuant to
this section, then such suspense account will not participate in the allocation of the Trust Funds
investment gains and losses.
(c) (1) If a Participant hereunder is a participant under one or more Related Plans during a
Limitation Year, the Annual Additions which may be credited to a Participants Accounts hereunder
for the Limitation Year shall not exceed the Maximum Permissible Amount reduced by the Annual
Additions credited to the Participants account(s) under the Related Plan(s) for the same
Limitation Year. If the Annual Additions with respect to the Participant under the Related Plan(s)
are less than the Maximum Permissible Amount and the Contributions that would otherwise be
allocable to the Participants Account under this Plan would cause the Annual Additions for the
Limitation Year to exceed the Maximum Permissible Amount, then the Contribution otherwise allocable
to the Participants Accounts hereunder shall be reduced so that the Annual Additions under this
Plan and the Related Plan(s) for the Limitation Year shall equal the Maximum Permissible Amount.
If the Annual Additions with
- 15 -
respect to the Participant under such Related Plan(s) in the aggregate
are equal to or greater than the Maximum Permissible Amount, then no Contribution will be allocated
to the Participants Accounts hereunder for the Limitation Year.
(2) If a Participants Annual Additions under this Plan and one or more Related Plan(s) result
in an Excess Amount for a Limitation Year, then the Excess Amount will be deemed to consist of the
Annual Additions last allocated. If an Excess Amount was allocated to a Participant on a Valuation
Date of this Plan which coincides with a Valuation Date of such Related Plan(s), then the Excess
Amount attributable to this Plan will be the product of:
(A) The total Excess Amount allocated as of such date, times
(B) The ratio of (I) the Annual Additions allocated to the Participants Accounts for the
Limitation Year as of such date under this Plan to (II) the total Annual Additions allocated to the
Participants Accounts for the Limitation Year as of such date under this Plan and all such Related
Plan(s).
(3) Any Excess Amount attributable to this Plan will be disposed of in the manner described in
subsection (a)(2) above.
(d) If
no more than one-third
(
1
/
3
) of the Contributions for a Plan Year which are deductible
under Section 404(a)(9) of the Code are allocated to the Accounts of highly compensated employees
(within the meaning of Section 414(q) of the Code) of the Employer, the Maximum Permissible Amount
shall not apply to:
(1) Forfeitures of Qualifying Employer Securities if such Securities were acquired with the
proceeds of an Exempt Loan, or
(2) Contributions which are deductible under Section 404(a)(9)(B) of the Code and charged
against Participant Accounts.
(e) No portion of the Trust Fund attributable to (or allocable in lieu of) Qualifying Employer
Securities acquired by the Plan in a sale to which Section 1042 of the Code applies may accrue (or
be allocated directly or indirectly under any Related Plan during the nonallocation period (as
defined in Section 409(n)(3)(C) of the Code), for the benefit of (1)(A) any taxpayer who makes an
election under Section 1042(a) of the Code with respect to Qualifying Employer Securities, or (B)
any individual who is related to the taxpayer or the decedent (within the meaning of Section 267(b)
of the Code), or (2) any other person who owns (after application of Section 318(a) of the Code
applied without regard to the Employee trust exception) more than twenty-five (25) percent of any
class of outstanding stock of the Company or of any corporation which is a member of the same
controlled group of corporations (within the meaning of Section 409(1)(4) of the Code) as the
Company, or the total value of any class of outstanding stock of the Company or any such
corporation.
- 16 -
ARTICLE 5
ACCOUNTS; ALLOCATIONS; AND ACCOUNTING
Section 5.1
Accounts
.
(a) The Administrative Committee shall establish a separate Cash Account and Stock Account in
the name of each Participant.
(b) Cash credited to a Participants Cash Account may at any time be used to purchase
Qualifying Employer Securities from any source, subject to Section 9.5 hereof. Upon the purchase
of Shares of Qualifying Employer Securities with such cash, such Shares shall be
credited to the Participants Stock Account, and the Participants Cash Account shall be
charged by the amount of such cash.
(c) The Administrative Committee and/or the Trustee may maintain such accounts and subaccounts
as they deem necessary or appropriate for administration of the Plan and Trust Fund, including a
contribution account to which cash and/or Qualifying Employer Securities contributed to the Plan
are allocated pending allocation to Participants Accounts.
Section 5.2
Allocation of Contributions and Forfeitures Among Eligible Participants
.
(a) Subject to the limitation of Section 4.3 hereof, as of the last Valuation Date of each
Plan Year, the Stock Account maintained for each Eligible Participant shall be credited with the
Participants proportionate share of (1) any Contributions for the Plan Year made in the form of,
or invested in (as of the Valuation Date), Qualifying Employer Securities, including any shares of
Qualifying Employer Securities released from the Suspense Account pursuant to Sections 8.2 and 8.4
hereof, and (2) any Forfeitures of Qualifying Employer Securities arising during the Plan Year.
(b) Subject to the limitation of Section 4.3 hereof, as of the last Valuation Date of each
Plan Year, the Cash Account maintained for each Eligible Participant shall be credited with the
Participants proportionate share of (1) any Contributions for the Plan Year made or held in the
form of cash, and (2) any Forfeitures of cash arising during the Plan Year.
(c) An Eligible Participants proportionate share of Contributions and Forfeitures for a Plan
Year shall equal the ratio that such Eligible Participants Compensation for the Plan Year bears to
the aggregate Compensation of all Eligible Participants for the Plan Year.
Section 5.3
Allocation of Income, Losses and Expenses
.
(a) As of each Valuation Date, the Cash Account maintained for each Participant shall be
credited with the Participants proportionate share of any net income (or loss) of the Trust Fund
since the preceding Valuation Date. It shall be debited for all distributions and payments
properly made from the Cash Account since the preceding Valuation Date, including but not limited
to, its proportionate share of any cash payments made under the Plan for the purchase of shares of
Qualifying Employer Securities or for the repayment of principal and interest on any Exempt Loan
since such date.
- 17 -
(b) The net income (or loss) of the Trust Fund for any valuation period will be determined as
of the relevant Valuation Date. Each Participants share of the Trust Funds net income (other
than dividends allocated in accordance with Section 5.4 hereof) or loss for the valuation period in
question shall be allocated to the Participants Cash Account in the ratio that the Participants
aggregate Account balances as of the preceding Valuation Date, less any distributions and payments
therefrom since such date, bears to the aggregate of all Participant Account balances as of the
preceding Valuation Date, less all distributions and payments therefrom since such date. The net
income (or loss) of the Trust Fund includes the increase (or decrease) in the fair market value of
Trust Fund (other than Shares of Qualifying Employer Securities), interest income, dividends and
other income and gains (or losses) attributable to the Trust Fund (other than any dividends
allocated in accordance with Section 5.4 hereof since the
preceding Valuation Date. The computation of net income (or loss) of the Trust Fund shall not
take into account any interest paid by the Trust Fund on an Exempt Loan. For this purpose, the
term valuation period means a period beginning with the Valuation Date immediately preceding the
Valuation Date in question and ending on the Valuation Date in question.
Section 5.4
Allocation of Dividends
.
(a) Any cash dividend received on shares of Qualifying Employer Securities allocated to a
Participants Stock Account as of the record date of the dividend shall, in the sole discretion of
the Administrative Committee, either be:
(1) Allocated to the Participants Cash Account;
(2) Used by the Trustee to make payments on an Exempt Loan; provided, however, that no cash
dividend paid on Shares of Qualifying Employer Securities allocated to a Participants Stock
Account shall be applied to make payments on an Exempt Loan unless Qualifying Employer Securities
with a fair market value of not less than the amount of the cash dividend are allocated to the
Participants Stock Account.
(b) Any cash dividends received on unallocated shares of Qualifying Employer Securities shall,
in the sole discretion of the Administrative Committee, either be:
(1) Allocated among Participant Cash Accounts in the ratio (determined as of the record date
of the dividend) that the number of Shares of Qualifying Employer Securities allocated to each
Participants Stock Account as of the preceding Valuation Date, less any distributions therefrom
since such date, bears to the total number of Shares of Qualifying Employer Securities allocated to
all Participants Stock Accounts as of the preceding Valuation Date, less all distributions
therefrom since such date;
(2) Used by the Trustee to make payments on an Exempt Loan.
(c) As of each Valuation Date, the Stock Account maintained for each Participant shall be
credited with any stock dividend received on Shares of Qualifying Employer Securities allocated to
the Participants Stock Account. Any stock dividends received on unallocated shares of Qualifying
Employer Securities during a valuation period (as defined in Section 5.3 hereof) shall be allocated
to each Participants Stock Account in the ratio that the Participants aggregate Account balances
as of the preceding Valuation Date, less any
- 18 -
distributions therefrom since such date, bear to the
aggregate Account balances of all Participants as of the preceding Valuation Date, less any
distributions therefrom since such date.
Section 5.5
Accounting Procedures
.
The Administrative Committee shall establish accounting procedures for the purpose of making
the allocations to Participants Accounts provided for in this Article 5. The Administrative
Committee shall maintain adequate records of the cost basis of shares of Qualifying Employer
Securities allocated to each Participants Stock Account. From time to time, the Administrative
Committee may modify its accounting procedures for the purposes of achieving equitable and
nondiscriminatory allocations among Participant Accounts, in
accordance with the provisions of this Article 5 and the applicable requirements of the Code
and ERISA.
Section 5.6
Voting and Tender Rights Qualifying Employer Securities
.
(a) For so long as the Qualifying Employer Securities are a class of securities which are
required to be registered under Section 12 of the Securities Exchange Act of 1934, or a class of
securities which would be required to be so registered except for the exemption from registration
provided in subsection (g)(2)(H) of Section 12 of said Act, each Participant shall be entitled to
direct the Trustee as to the manner in which Qualifying Employer Securities allocated to his Stock
Account is to be voted.
(b) The Trustee shall vote Shares of Qualifying Employer Securities allocated to Participant
Stock Accounts in accordance with the directions received from the Participants. If the Trustee
does not receive timely and proper directions from one or more Participants regarding the voting of
any Shares of Qualifying Employer Securities held in the Trust Fund (including unallocated Shares),
the Trustee shall vote those Shares in the same proportion, for and against propositions submitted
to the vote of the shareholders, as the Trustee votes Shares for which it receives timely and
proper directions.
(c) Each Participant shall be entitled to direct the Trustee whether to tender the Shares of
Qualifying Employer Securities allocated to the Participants Stock Account in response to a tender
offer. After the Participants have had an opportunity to cast votes on such matter as provided
herein and said votes are counted, the Trustee shall tender only those Shares on such matter for
which the Trustee receives timely and proper tender instructions. The Trustee shall not tender any
Shares (including unallocated Shares) for which it does not receive timely and property directions.
(d) Notwithstanding anything contained herein to the contrary, any voting or tender direction
given by a Participant pursuant to this Section 5.6 shall not be disclosed to the Employers and
shall be held confidential by the Trustee.
(e) This Section 5.6 shall be implemented by such rules and regulations as may be adopted by
the Trustee and the Administrative Committee from time to time. Not in limitation of the
foregoing, such rules and regulations may set time limits for Participants to cast votes or give
tender instructions on any matter.
- 19 -
Section 5.7
Annual Statements
.
On or before the expiration of four (4) calendar months after each Valuation Date which is the
last day of the Plan Year, or as soon as administratively feasible thereafter, the Administrative
Committee shall upon information furnished by the Trustee, or the Trustee shall upon direction of
the Administrative Committee, make reports to each Participant as of the Valuation Date showing the
opening and closing balances in each of the Participants Accounts for the Plan Year and all
transactions involving the Participants Accounts for the Plan Year.
ARTICLE 6
VESTING
Section 6.1
General
.
(a) Subject to 6.2 hereof, a percentage of the amounts credited to a Participants Accounts
shall become vested and nonforfeitable on the basis of his completed Years of Service with the
Affiliates according to the following schedule:
|
|
|
|
|
Completed
|
|
|
Years of Service
|
|
Vested Percentage
|
1-2
|
|
|
0
|
%
|
3
|
|
|
20
|
%
|
4
|
|
|
40
|
%
|
5
|
|
|
60
|
%
|
6
|
|
|
80
|
%
|
7
|
|
|
100
|
%
|
(b) If the Plans vesting schedule is amended, or the Plan is amended in any way that directly
or indirectly affects the computation of the Participants nonforfeitable percentage or if the Plan
is deemed amended by an automatic change to or from a Top-Heavy vesting schedule under Article 11
hereof, then each Participant with at least three (3) Years of Service may elect, within a
reasonable period after the adoption of the amendment or change, to have the nonforfeitable
percentage computed under the Plan without regard to such amendment or change. The period during
which the election may be made shall commence with the date the amendment is adopted or deemed to
be made and shall end on the latest of
(1) Sixty (60) days after the amendment is adopted;
(2) Sixty (60) days after the amendment becomes effective; or
(3) Sixty (60) days after the Participant is issued written notice of the amendment by the
Employer.
- 20 -
Section 6.2
Retirement, Death and Disability
.
Upon the death or Total and Permanent Disability of a Participant while he is an Employee, or
upon his Retirement, the Participant shall become 100% vested in the entire amount credited to the
Participants Accounts.
Section 6.3
Breaks in Service; Forfeitures
(a) In the case of a Participant who incurs one or more consecutive Breaks in Service, but not
a Disqualifying Break in Service, all of the Participants Years of Service prior to and after such
Breaks in Service shall be taken into account in determining the Participants vested percentage
under Section 6.1 hereof.
(b) Notwithstanding (a) above, in the case of a Participant who incurs a Break in Service, the
Participants Years of Service before such Break in Service shall not be taken into account for
purposes of determining the Participants vested percentage under Section 6.1 hereof until the
Participant has completed one (1) Year of Service after his return.
(c) In the case of a Participant who Terminates Employment when he is partially vested in his
Accounts, incurs a Disqualifying Break in Service, but does not take a distribution of his vested
Account balances, the Participants nonvested Account balances shall be forfeited on the last day
of the Plan Year in which the Participant incurs such a Disqualifying Break in Service and shall be
reallocated in accordance with Section 5.2 hereof. The Participants Years of Service, if any,
after such Disqualifying Break in Service shall not be taken into account in determining his or her
vested percentage in the amounts credited to his Accounts prior to such Disqualifying Break in
Service.
(d) In the case of a Participant who Terminates Employment and receives a distribution of his
vested Account balances pursuant to Section 7.1 hereof when the Participant is partially vested in
his Accounts, the Participants nonvested Account balances shall be forfeited upon such
distribution and reallocated in accordance with Section 5.2 hereof. If the Participant again
becomes an Employee prior to incurring a Disqualifying Break in Service, the Participants
forfeited Account balances (without earnings) shall be restored if the Participant repays to the
Plan the full amount of the foregoing distribution prior to the expiration of the five-year period
beginning on the day after the date on which the Participant again becomes an Employee.
(e) Notwithstanding paragraphs (b) and (c) above, in the case of a Participant who Terminates
Employment when he has a vested percentage of zero under Section 6.1 hereof, the Participant shall
be deemed to have received a distribution of his vested Account balances, and his nonvested Account
balances shall be forfeited, as of the last day of the Plan Year in which his Termination of
Employment occurs, and the Participants forfeited Account balances shall be reallocated in
accordance with Section 5.2 hereof. If the Participant is reemployed by the Employer prior to
incurring a Disqualifying Break in Service, his forfeited Account balances (without earnings) shall
be restored to him.
(f) If a Participants forfeited Account balances are restored under paragraph (c) or (d)
above, the source of such restoration shall be other Forfeitures arising under paragraphs (b), (c)
and (d) above. If such Forfeitures are insufficient to restore the Account balances under
- 21 -
paragraph (c) or (d) above, the Employer shall contribute the amount required to restore the
Account balances.
(g) Forfeitures arising under this Section 6.3 shall be held in a suspense account pending
reallocation under Section 5.2(f) hereof.
Section 6.4
Increase in Vesting
.
An Account balance with respect to which a Participants vested percentage may increase under
Section 411 of the Code shall be computed such that at any relevant time an Employees vested
percentage is not less than an amount (X) determined by the formula: X=P(AB+D)-D. For purposes
of applying the formula: P is the vested percentage at the relevant time; AB is the
Account Balance at the relevant time; D is the amount of the distribution; and the relevant
time is the time at which, under the Plan, the vested percentage of the Participants Account
cannot increase.
ARTICLE 7
DISTRIBUTIONS
Section 7.1
Entitlement to Distribution
.
A Participant (or his Beneficiary) shall be entitled to a distribution of the Participants
vested Account balances upon the Participants Retirement Date, Total and Permanent Disability or
other Termination of Employment.
Section 7.2
Method and Time of Distribution
.
(a) Distribution of a Participants vested Account balances shall be made in one lump sum
payment in whole shares of Qualifying Employer Securities, plus cash for fractional shares.
(b) A Participant (or his Beneficiary) may elect a distribution of the Participants vested
Accounts as of any Distribution Date coincident with or next following the Participants
Termination of Employment. The Administrative Committee shall make such distribution on, or as
soon as practicable after, the elected Distribution Date, provided, however, that the Participant
(or his Beneficiary) files his distribution election with the Administrative Committee with such
advance notice as the Administrative Committee shall prescribe. All distribution elections shall
be made in accordance with rules prescribed by the Administrative Committee.
(c) Except as provided in Section 7.3 hereof, or unless a Participant otherwise elects,
distribution of the Participants vested Account balances will be made not later than the 60th day
after the latest of the close of the Plan Year in which occurs: (1) the date on which he attains
Normal Retirement Age; (2) the 10th anniversary of the date on which he became a Participant, or
(3) his Termination of Employment. This paragraph (d) shall not apply to any Shares of Qualifying
Employer Securities acquired with the proceeds of an Exempt Loan until the close of the Plan Year
in which the Exempt Loan is repaid in full.
- 22 -
Section 7.3
Mandatory Distributions
.
If, upon Termination of Employment for any reason, a Participants vested Account balances do
not exceed one thousand dollars ($1,000), then the Administrative Committee shall direct the
Trustee to distribute the vested Account balances to the Participant as soon as practicable after
the Distribution Date coincident with or next following the Participants Termination of
Employment.
Section 7.4
Designation of Beneficiary
.
(a) Each Participant may designate a person or persons who shall receive a distribution
payable hereunder on the death of the Participant, and shall, subject to paragraph (b) below, have
the right to revoke any such designation. Any such designation shall be evidenced by a written
instrument filed with the Administrative Committee and signed by the Participant. The designation
by a Participant of a Beneficiary who is not the Participants spouse shall require a consent (made
in accordance with paragraph (b) below) thereto by the Participants surviving spouse, or a
demonstration that such consent may not be obtained or that there is no surviving spouse, as
described further in paragraph (b) below. If a Participant designates a trust as Beneficiary, the
beneficiaries of the trust with respect to the Participants interest in the Plan shall be treated
as designated Beneficiaries for purposes of Article 15 hereof, if such beneficiaries are
individuals and the requirements of Treasury Regulations Section 1.401(a)(9)-4, Q&A 5 are met. If
no Beneficiary designation is on file with the Administrative Committee at the time of the death of
a Participant, or if such designation is not effective for any reason as determined by the
Administrative Committee, then payment of the distribution shall be made to the Participants
estate.
(b) A Participant may designate as his Beneficiary a person who is not his spouse if either
(1) (A) his spouse consents in writing to such designation, (B) the designation provides that it
may not be changed without spousal consent (or the consent of the spouse expressly permits
designations by the Participant without further consent by the spouse), and (C) the spouses
consent acknowledges the effect of such election and is witnessed by a representative of the Plan
or a notary public, or (2) it is established to the satisfaction of the Administrator that such
consent may not be obtained because there is no spouse, because the spouse cannot be located, or
because of such other circumstances as are prescribed by Treasury Regulations. Any consent by a
spouse (or establishment that the consent of a spouse may not be obtained) shall be effective only
with respect to such spouse.
(c) Notwithstanding paragraphs (a) and (b) above, upon the dissolution of the marriage of a
Participant, the Administrator shall treat the Participants former spouse as having predeceased
the Participant with respect to any designation of the former spouse as the Participants
Beneficiary under paragraph (a) above unless either (1) after the dissolution of the marriage, the
Participant files with the Administrator another written instrument executed by the Participant
explicitly designating the former spouse as the Participants Beneficiary, or (2) a qualified
domestic relations order, within the meaning of Section 414(p) of the Code, explicitly requires the
Participant to maintain the former spouse as his Beneficiary. In any case in which the
Participants former spouse is treated as having predeceased the Participant, no heir or other
beneficiary of the former spouse shall be entitled to receive any benefits from the Plan as a
Beneficiary except as otherwise provided in the Participants written Beneficiary designation.
- 23 -
Section 7.5
Required Beginning Date
.
Notwithstanding any other provision of the Plan, the entire interest of each Participant (a) shall
be distributed not later than the Required Beginning Date, or (b) shall be distributed, beginning
not later than the Required Beginning Date, in accordance with regulations prescribed by the
Secretary over the life of such Participant or over the lives of such Participant and a designated
Beneficiary (or over a period not extending beyond the life expectancy of such Participant or the
life expectancy of such Participant and a designated beneficiary). The term Required Beginning
Date means April 1 of the calendar year following the later of (a) the calendar year in which the
Participant attains age seventy and one-half (70
1
/
2
), or (b) the calendar year in which the
Participant retires, except that clause (a) shall not apply in the case of a Participant who is a
five percent (5%) owner (as defined in Section 416 of the Code) with respect to the Plan Year
ending in the calendar year in which the Participant attains the age of seventy and one-half (70
1
/
2
).
Notwithstanding the above, any Participant (other than a five-percent owner) who attains age
seventy and one-half (70
1
/
2
) before 1999 may elect to commence distributions by April 1 of the
calendar year following the calendar year in which he attains age seventy and one-half (70
1
/
2
), or
elect to defer payment until April 1 of the calendar year following the calendar year in which the
Participant retires.
Section 7.6
Distributions of General Employees Profit Sharing Plan Accounts
.
Notwithstanding any other provisions of this Article 7, if a Participant (or his Beneficiary)
elected prior to August 1, 2006, to receive that portion of the Participants Accounts attributable
to the Participants account balance under the General Employees Profit Sharing Plan as of October
31, 1993, in the form of an annuity, the Participant (or his Beneficiary) shall continue to receive
annuity payments on and after August 1, 2006.
Section 7.7
Rollover Treatment
.
(a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a
Distributees election under this Section 7.7, a Distributee may elect, at the time and in the
manner prescribed by the Administrative Committee to have any portion of an Eligible Rollover
Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct
Rollover.
(b) (1) An Eligible Rollover Distribution is any distribution of all or any portion of the
balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not
include (i) any distribution that is one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy) of the Distributee or the
joint lives (or joint life expectancies) of the Distributee and the Distributees designated
beneficiary, or for a specified period of ten (10) years or more; (ii) any distribution to the
extent such distribution is required under Section 401(a)(9) of the Code; (iii) the portion of any
distribution that is not includible in gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to Shares of Qualifying Employer Securities), and (iv) any
amount that is distributed as a hardship distribution as that term is described in Section
401(k)(2)(B)(i)(IV) of the Code.
(2) Notwithstanding (b)(1) above, a portion of a distribution shall not fail to be an Eligible
Rollover Distribution merely because the portion consists of after-tax employee contributions which
are not includable in gross income. However, such portion may be
- 24 -
transferred only to an individual
retirement account or annuity described in Section 408(a) or (b) of the Code, or to a qualified
defined contribution plan described in Section 401(a) or 403(a) of the Code that agrees to
separately account for amounts so transferred, including separately accounting for the portion of
such distribution which is includable in gross income and the portion of such distribution which is
not so includable.
(c) An Eligible Retirement Plan is any of the following that accepts a Distributees Eligible
Rollover Distribution: (1) an individual retirement account described in Section 408(a) of the
Code, (2) an individual retirement annuity described in Section 408(b) of the Code, (3) an annuity
plan described in Section 403(a) of the Code, (4) a qualified trust described in Section 401(a) of
the Code, (5) an annuity contract described in Section 403(b) of the Code, and (6) an eligible plan
under Section 457(b) of the Code which is maintained by a state, political subdivision of a state,
or any agency or instrumentality of a state or political subdivision of a state and which agrees to
separately account for amounts transferred into such plan from this plan.
(d) A Distributee includes an Employee or former Employee. In addition, the Employees or
former Employees surviving spouse and the Employees or former Employees spouse or former spouse
who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p)
of the Code, are Distributees with regard to the interest of the spouse or former spouse.
(e) A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by
the Distributee.
Section 7.8
30-Day Notice of Distribution Rights
.
If a distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, such
distribution may commence less than thirty (30) days after the notice required under Treasury
Regulation Section 1.411(a)-11(c) is given, provided that:
(a) The Administrative Committee clearly informs the Participant that the Participant has a
right to a period of at least thirty (30) days after receiving the notice to consider the decision
of whether or not to elect a distribution (and, if applicable, a particular distribution option),
and
(b) The Participant, after receiving the notice, affirmatively elects a distribution.
Section 7.9
Hardship Distributions
(a) A Participant who is fully vested in his Accounts may make written application to the
Administrative Committee to withdraw all or part of the Participants Account balances. Such an
application shall be approved by the Administrative Committee only if the Administrative Committee
shall determine that the withdrawal is necessary to satisfy an immediate and heavy financial need
of the Participant. Distribution of such withdrawal shall be made to the Participant in a lump sum
payment of whole shares of Qualifying Employer Securities, plus cash for fractional shares, as soon
as practicable after the withdrawal is approved by the Administrative Committee.
- 25 -
(b) A Withdrawal from a Participants Account pursuant this Section 7.9 shall not exceed the
lesser of:
(1) The Participants Account balances; or
(2) Such amount as the Administrative Committee determines to be necessary to relieve the
immediate and heavy financial need established by the Participant, including any amounts necessary
to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from
such withdrawal.
(c) The Administrative Committee shall promulgate (and may from time to time amend) rules and
regulations prescribing the procedures to be followed in requesting a hardship withdrawal and the
circumstances which will be deemed to warrant a withdrawal to meet an immediate and heavy financial
need.
(d) Determinations of the existence of an immediate and heavy financial need shall be made by
the Administrative Committee on the basis of all relevant facts and circumstances. Without
limiting the circumstances which will be deemed to constitute immediate and heavy financial needs,
a withdrawal shall be deemed to be made on account of an immediate and heavy financial need of a
Participant if the withdrawal is on account of the following:
(1) Expenses for (or necessary to obtain) medical care that would be deductible by the
Participant under Section 213(d) of the Code (determined without regard to whether the expenses
exceed 7.5% of adjusted gross income);
(2) Costs directly related to the purchase of a principal residence for the Participant
(excluding mortgage payments);
(3) Payment of tuition, related educational fees, and room and board expenses, for up to the
next 12 months of post-secondary education for the Participant, or the Participants spouse,
children, or dependents (as defined in Section 152 of the Code and without regard to Sections
152(b)(1), (b)(2) and (d)(1)(B) of the Code);
(4) Payments necessary to prevent the eviction of the Participant from the Participants
principal residence or foreclosure on the mortgage on that residence;
(5) Payments for burial or funeral expenses for the Participants deceased parent, spouse,
children or dependents (as defined in Section 152 of the Code and without regard to Section
152(d)(1)(B) of the Code);
(6) Expenses for the repair of damage to the Participants principal residence that would
qualify for the casualty deduction under Section 165 of the Code (determined without regard to
whether the loss exceeds 10% of adjusted gross income); or
(7) Such other circumstances as the Commissioner of Internal Revenue may, through the
publication of revenue rulings, notices, and other documents of
- 26 -
general applicability, determine
constitute immediate and heavy financial needs for purposes of Section 401(k) of the Code.
(e) A distribution will not be treated as necessary to satisfy an immediate and heavy
financial need of a Participant to the extent that the amount of the distribution exceeds the
amount required to relieve the financial need or such need may be satisfied from other resources
that are reasonably available to the Participant. The determination of whether a distribution
is necessary to satisfy a financial need shall be made on the basis of all relevant facts and
circumstances by the Administrative Committee. In making such determination with respect to any
hardship distribution to be made, the Administrative Committee may rely upon a Participants
representation that the need cannot be relieved by the following:
(1) Reimbursement or compensation by insurance or otherwise;
(2) Reasonable liquidation of the Participants assets, to the extent that such liquidation
would not itself cause an immediate and heavy financial need;
(3) Other distributions or nontaxable (at the time of the loan) loans from Related Plans; or
(4) Borrowing from commercial sources on reasonable commercial terms.
Section 7.10
Missing Persons
.
In the event the whereabouts of a person entitled to benefits under the Plan cannot be
determined after diligent search by the Administrative Committee or the Trustee, and the persons
whereabouts continue to be unknown for a period of five (5) years, then the Accounts of the person
shall be forfeited. If the person is subsequently located, his Accounts shall be restored to him
without earnings.
Section 7.11
Diversification of Investments
.
(a) With respect to all Qualifying Employer Securities acquired after 1986, each Qualified
Participant may elect under the provisions of Section 401(a)(28)(B) of the Code within ninety (90)
days after the close of each Plan Year in the Qualified Election Period to receive a distribution
of at least twenty-five (25) percent of the Participants Accounts hereunder (to the extent such
portion exceeds the amount to which a prior election under this Section applies). In the case of
the election year in which the Participant can make his last election, the preceding sentence shall
be applied by substituting fifty (50) percent for twenty-five (25) percent.
(b) The term Qualified Participant means any employee who has completed at least ten (10)
years of participation under the Plan and has attained age fifty-five (55).
(c) The term Qualified Election Period means the six (6) Plan Years beginning with the Plan
Year after the Plan Year in which the Participant attains age fifty-five (55) (or, if later,
beginning with the Plan Year after the first Plan Year in which the individual first became a
Qualified Participant).
- 27 -
(d) In the event a Qualified Participant makes a diversification election with respect to his
Accounts under the provisions of this Section, the Trustee shall distribute to the Participant the
portion of the Participants Accounts covered by the election within ninety (90) days after the
period during which the election may be made.
(e) All distributions under this Section shall be made in whole shares of Qualifying Employer
Securities, plus cash for fractional shares.
Section 7.12
In-Service Distributions at Age 62
.
(a) Notwithstanding the preceding provisions of this Article 7 to the contrary, any
Participant who has completed ten (10) or more Years of Service and has attained age sixty-two (62)
may elect to receive a distribution of the entire amount of his vested Accounts or in two or more
payments depending upon the age of the Participant at the end of the Plan Year in which an election
is made. An election under this Section may be made in writing on a form provided by the
Administrative Committee no later than the end of the Plan Year during which the election for
distribution is made. Once made, an election under this Section shall be binding and irrevocable.
The first payment shall be made to the Participant within ninety (90) days after the end of the
Plan Year in which an election to receive a distribution is made or as soon as administratively
feasible thereafter, and any successive payments shall be made within similar time periods after
the end of the immediately succeeding Plan Year(s) if more than one (1) payment is made.
(b) The schedule of payments shall be as follows;
|
|
|
Age of Participant at the end of
|
|
|
the Plan Year in which an
|
|
|
election to receive a distribution
|
|
Distribution
|
is made
|
|
shall be made in
|
62
|
|
Four (4) annual installments
calculated as one-fourth (
1
/
4
),
one-third
(
1
/
3
), one-half (
1
/
2
) and one
(1) respectively, times the
Participants Account balances at
the end of the Plan Year.
|
|
|
|
63
|
|
Three (3) annual installments
calculated as one-third (
1
/
3
),
one-half (
1
/
2
) and one (1),
respectively, times the
Participants Account balances at
the end of the Plan Year.
|
|
|
|
64
|
|
Two (2) annual installments,
calculated as one-half (
1
/
2
) and one
(1), respectively, times the
Participants Account balances at
the end of the Plan Year.
|
|
|
|
65 and older
|
|
One (1) installment of the entire
amount in the Participants Account
balances at the end of the Plan
Year.
|
- 28 -
(c) An in-service distribution of a Participants Accounts under this Section will be made in
whole shares of Qualifying Employer Securities, plus cash for fractional shares. An election for
distribution of Accounts pursuant to this Section shall not terminate the Participants right to
participate in allocations of Contributions or Forfeitures hereunder.
(d) Notwithstanding paragraphs (a), (b) and (c) above, (1) if a Participant who has elected
in-service distributions pursuant to this Section Terminates Employment prior to receiving the
entire amount of his Account balances, the Participants remaining Account balances shall be
distributed in accordance with Section 7.2 hereof; and (2) if a Participant who has elected
in-service distributions pursuant to this Section has previously made or subsequently makes a
diversification election pursuant to Section 7.11 hereof, then for each Plan Year with respect to
which both elections are effective, there shall be distributed to such Participant the greater of
the amount required to be distributed to him under the Section 7.11 election or the amount required
to be distributed to him under this Section 7.12.
(e) The amount of each payment made in accordance with the preceding schedule shall be
calculated by multiplying the Participants Account balances, determined as of the end of the Plan
Year immediately preceding the installment payment, by the appropriate installment fraction.
ARTICLE 8
SPECIAL PROVISIONS RELATING TO LOANS
Section 8.1
Exempt Loans
.
The Trustee may incur an Exempt Loan on behalf of the Plan in a manner and under conditions
which will cause the loan to be an Exempt Loan within the meaning of Section 4975(d)(3) of the Code
and regulations thereunder. An Exempt Loan shall be used primarily for the benefit of Participants
and their Beneficiaries. The proceeds of each Exempt Loan shall be used, within a reasonable time
after the Loan is obtained, only to purchase Qualifying Employer Securities, to repay the Exempt
Loan or to repay any prior Exempt Loan. Any Exempt Loan shall provide for a reasonable rate of
interest, an ascertainable period of maturity and shall be without recourse against the Plan. Any
Exempt Loan shall be secured solely by shares of Qualifying Employer Securities acquired with the
proceeds of the Exempt Loan and shares of such securities that were used as collateral on a prior
Exempt Loan which was repaid with the proceeds of the current Exempt Loan. Such securities pledged
as collateral shall be placed in a Suspense Account and released pursuant to Section 8.2 hereof as
the Exempt Loan is repaid. Qualifying Employer Securities released from the Suspense Account shall
be allocated among Participant Accounts in the manner described in Section 5.2 hereof. No person
entitled to payment under an Exempt Loan shall have recourse against (i) any Trust Fund assets
other than the Qualifying Employer Securities used as collateral for the Loan, (ii) Contributions
of cash that are available to meet obligations under the Loan and earnings attributable to such
collateral, and (iii) the investment of such Contributions. Contributions made with respect to any
Plan Year during which the Exempt Loan remains unpaid, and earnings on such Contributions, shall be
deemed available to meet obligations under the Exempt Loan.
- 29 -
Section 8.2
Release of Shares from Suspense Account
.
An Exempt Loan shall provide for the release of Shares of Qualifying Employer Securities used
as collateral for the Loan from the Suspense Account. For each Plan Year during
the duration of the Exempt Loan, the number of Shares released shall equal the number of
Shares held in the Suspense Account immediately before release for the current Plan Year multiplied
by a fraction. The numerator of the fraction is the amount of principal and interest paid for the
Plan Year. The denominator of the fraction is the sum of the numerator plus the principal and
interest to be paid for all future Plan Years. The number of future years under the Exempt Loan
shall be definitely ascertainable and shall be determined without taking into account any possible
extensions or renewal periods. If the interest rate under the Exempt Loan is variable, the
interest to be paid in future years shall be computed by using the interest rate applicable as of
the end of the Plan Year. If collateral includes more than one class of Qualifying Employer
Securities, the number of shares of each class to be released for a Plan Year shall be determined
by applying the same fraction to each class.
Section 8.3
Exempt Loan Repayments
.
Payments of principal and interest on any Exempt Loan hereunder shall be made by the Trustee
at the direction of the Administrative Committee solely from: (i) Contributions available to meet
obligations under the Exempt Loan, (ii) earnings from the investment of such Contributions, (iii)
earnings attributable to Shares of Qualifying Employer Securities pledged as collateral for the
Exempt Loan, (iv) other dividends on stock to the extent permitted by law, (v) the proceeds of a
subsequent Exempt Loan made to repay the Exempt Loan, and (vi) the proceeds of the same of any
shares pledged as collateral for the Exempt Loan. The Contributions and earnings available to pay
the Exempt Loan shall be accounted for separately by the Administrative Committee until the Exempt
Loan is repaid.
Section 8.4
Allocation of Released Shares
.
Subject to the limitations on Annual Additions to a Participants Accounts under Section 4.3
hereof, Shares of Qualifying Employer Securities released from a Suspense Account by reason of a
payment made on an Exempt Loan shall be allocated to the Stock Accounts of Eligible Participants in
accordance with the allocation formula under Section 5.2 hereof as if such payment had been made on
the last day of the Plan Year. The assets of the Trust Fund attributable to Shares acquired by
the
-
Plan in a sale to which Section 1042 of the Code applies shall not accrue or be
allocated for the benefit of persons specified in Section 409(n) of the Code during the
nonallocation period as restricted by Section 4.3(d) hereof.
Section 8.5
Nonterminable Rights
.
There shall be certain protections and rights provided to Participants with respect to Shares
of Qualifying Employer Securities acquired with the proceeds of an Exempt Loan. These protections
and rights are as follows:
(a) No Shares acquired with the proceeds of an Exempt Loan may be subject to a put, call or
other option, or buy-sell or similar arrangement, while held by, and when distributed from, the
Plan, whether or not the Plan is then an employee stock ownership plan, except that:
(1) Shares acquired with the proceeds of an Exempt Loan may, but need not, be subject to a
right of first refusal. Shares subject to such right must be stock or an
- 30 -
equity security, or a debt security convertible into stock or an equity security. Also, such
Shares must not be publicly traded at the time the right may be exercised. The right of first
refusal must be in favor of the Employer, the Plan, or both in any order of priority. The selling
price and other terms under the right must not be less favorable to the seller than the greater of
the: fair market value of the Shares, or the purchase price and other terms offered by a buyer,
other than the Employers or the Plan, making a good faith offer to purchase a security. The right
of first refusal shall lapse no later than fourteen (14) days after the security holder gives
written notice to the holder of the right that an offer of a third party to purchase the Shares has
been received.
(2) Shares acquired with the proceeds of an Exempt Loan shall be subject to a put option if
the Shares are not publicly traded or are subject to a trading limitation when distributed. For
purposes of this paragraph, a trading limitation on Shares is a restriction under any federal or
state securities law, any regulation thereunder, or an agreement, not prohibited by Treasury
Regulations Section 54.4975-7(b), affecting the Shares which would make the Shares not as freely
tradable as one not subject to such restriction. The put option shall be exercisable only by a
Participant, by the Participants donees, or by a person (including an estate or its distributees)
to whom the Shares pass by reason of a Participants death. (Under this paragraph, Participant
means a Participant and his Beneficiaries.) The put option shall permit a Participant to put the
Shares to the Employer. Under no circumstances may the put option bind the Plan. However, it may
grant the Plan an option to assume the rights and obligations of the Employer at the time the put
option is exercised. If it is known at the time an Exempt Loan is made that federal or state law
would be violated by the Employer honoring such put option, the put option must permit the Shares
to be put, in a manner consistent with such law, to a third party (
e.g
., an Affiliate or a Company
shareholder other than the Plan) that has substantial net worth at the time the Exempt Loan is made
and whose net worth is reasonably expected to remain substantial.
(A) A put option shall be exercisable at least during a 15-month period which begins on the
date the Shares subject to the put option is distributed by the Plan. In the case of Shares that
are publicly traded without restriction when distributed but ceases to be so traded within fifteen
(15) months after distribution, the Employer shall notify each Shareholder in writing on or before
the tenth day after the date the Shares cease to be so traded that for the remainder
-
of
the 15-month
-
period the Shares are subject to a put option. The number of days between
such tenth day and the date on which notice is actually given, if later than the tenth day, shall
be added to the duration of the put option. The notice shall inform distributees of the terms of
the put option that they are to hold. Such terms shall satisfy the requirements of this Section
8.5.
(B) A put option shall be exercised by the holder by notifying the Employer in writing that
the put option is being exercised. The period during which a put option is exercisable shall not
include any time when a distributee is unable to exercise it because the party bound by the put
option is prohibited from honoring it by applicable federal or state law. The price at which a put
option shall be exercisable is the fair market value of the Shares. The provisions of payment under
a put option shall be reasonable. The deferral of payment is reasonable if adequate security and a
reasonable interest rate are provided for any credit extended, and if the cumulative payments at
any time are no less than the aggregate of reasonable periodic payments as of such time. Periodic
payments are reasonable if annual
- 31 -
installments, beginning thirty (30) days after the date the put option is exercised, are
substantially equal. Generally, the payment period may not end more than five (5) years after the
date the put option is exercised. However, it may be extended to a date no later than the earlier
of ten (10) years from the date the put option is exercised or the date the proceeds of the Exempt
Loan used by the Plan to acquire the Shares subject to the put option are entirely repaid. Payment
under a put option may be restricted by the terms of an Exempt Loan, including one used to acquire
Shares subject to a put option. Otherwise, payment under a put option shall not be restricted by
the provisions of an Exempt Loan or any other arrangement, including the terms of the Employers
articles of incorporation, unless so required by applicable state law.
Section 8.6
Valuation of Qualifying Employers Securities
.
The fair market value of Qualifying Employer Securities that are not readily tradable on an
established securities market shall be determined as of each Valuation Date by an independent
appraiser who meets requirements similar to the requirements of the regulations prescribed under
Section 170(a)(1) of the Code.
ARTICLE 9
TRUST FUND
Section 9.1
Trust Agreement
.
The Company has entered into a Trust Agreement with the Trustee to hold the funds set aside
pursuant to this Plan.
Section 9.2
Non-Reversion; Exclusive Benefit Clause
.
The Trust Fund shall be received, held in trust and disbursed by the Trustee in accordance with the
provisions of the Trust Agreement and this Plan. Except as provided in Section 4.2(c) or (d)
hereof, no part of the Trust shall be used for or diverted to purposes other than for the exclusive
benefit of Participants or their Beneficiaries or defraying the reasonable administrative expenses
of the Plan. No person shall have any interest in, or right to, the Trust Fund or any part
thereof, except as specifically provided for in this Plan or the Trust Agreement. Notwithstanding
the above, nothing in this Section nor the Plan shall preclude the Trustee from complying with a
qualified domestic relations order, within the meaning of Section 414(p) of the Code.
Section 9.3
Powers of the Trustee
.
The Trustee shall have such powers to hold, invest, reinvest, control, and disburse Trust Funds as
at that time shall be set forth in the Trust Agreement.
Section 9.4
Trust Agreement Part of the Plan
.
The Trust Agreement shall be deemed to form a part of the Plan and all the rights of Participants
or others under this Plan shall be subject to the provisions of the Trust Agreement to the extent
such provisions are not contradicted by specific provisions of this Plan.
- 32 -
Section 9.5
Trustee Purchase of Stock
. As soon as practicable after the Trustee receives
cash Contributions, dividends or other amounts on behalf of the Plan or any Participant, and to the
extent not prohibited by applicable law, the Trustee shall invest such cash in Qualifying Employer
Securities. Pending such investment in Qualifying Employer Securities, however, the Trustee may
retain cash uninvested without liability for interest, or may invest all or any part thereof in
suitable investments and securities. Notwithstanding the foregoing, the Trustee may hold Trust
Fund assets in cash or other liquid investments to the extent the Trustee deems reasonable or
appropriate for Plan liquidity purposes.
ARTICLE 10
ADMINISTRATIVE COMMITTEE
Section 10.1
Named Fiduciaries
.
The following persons shall be Named Fiduciaries under the Plan.
(a) The Trustee: Subject to the direction of the Administrative Committee, as described in
this Article 10, the Trustee shall have exclusive authority and discretion to manage and control
the assets of the Trust, as provided in the Trust Agreement, and shall have no responsibilities
other than those provided in such Agreement.
(b) Administrative Committee: The Administrative Committee shall be the Administrator, as
that term is defined under ERISA Section 3(16)(A), of the Plan. The Administrative Committee shall
consist of at least three persons appointed by the Board of Directors.
Section 10.2
Appointment of Administrative Committee
.
The Board shall appoint the Administrative Committee consisting of officers or other Employees. The
Administrative Committee shall be composed of no more than five (5) members, as determined from
time to time by the Board. The Administrative Committee Members shall serve at the pleasure of the
Board, and vacancies in the Administrative Committee arising by reason of resignation, death,
removal, or otherwise shall be filled by the Board. Any Administrative Committee Member may resign
of his own accord by delivering his written resignation to the Board.
- 33 -
Section 10.3
Organization and Operation of Administrative Committee
.
The Administrative Committee shall appoint a Chairman and a Secretary and such other officers as it
shall deem advisable. The Administrative Committee shall act by a majority of the Administrative
Committee Members at the time in office and such action may be taken either by a vote at a meeting
or in writing without a meeting. The Administrative Committee may by such majority action
authorize any one or more of the Administrative Committee Members to execute any document or
documents on behalf of the Administrative Committee.
Section 10.4
Responsibilities and Powers of Administrative Committee
.
(a) The Administrative Committee shall have responsibility and authority to control the
operation and administration of the Plan in accordance with the terms of the Plan, including,
without limiting the generality of the foregoing,
(1) All functions assigned to the Administrative Committee under the terms of the Plan;
(2) Determination of benefit eligibility;
(3) Determination of any questions arising in connection with the interpretation, application
or administration of the Plan (including any questions of fact relating to age, service,
compensation or eligibility of Employees);
(4) Hiring of persons to provide necessary services to the Plan, including a recordkeeper and
the Trustee;
(5) Issuance of directions to the Trustee as to (i) the payment of any fees, taxes, charges or
other costs incidental to the operation and management by the Administrative Committee of the Plan;
(ii) the payment of benefits to Participants; (iii) the allocation, payment and distribution of the
Trust Fund, including interest thereon; or (iv) any other matter; and
(6) Maintenance of all records of the Plan other than those required to be maintained by the
Trustee or any recordkeeper.
(b) The Administrative Committees decisions and actions shall be conclusive and binding upon
any and all persons and parties;
(c) Administrative Committee Members shall serve without compensation for their services in
the administration and operation of the Plan unless compensation therefor is fixed by the Board in
its appointment of the Administrative Committee or thereafter.
(d) The Administrative Committee shall enact such rules and regulations as it may deem proper
and necessary to facilitate the administration and operation of the Plan.
- 34 -
Section 10.5
Individual and Shared Responsibilities of Named Fiduciaries
.
This Article 10 is intended to allocate to each Named Fiduciary the individual responsibility
for the prudent execution of the functions assigned to the Named Fiduciary, and none of such
responsibilities or any other responsibility shall be shared by the Named Fiduciaries unless such
sharing shall be provided by a specific provision of the Plan or the Trust Agreement. Whenever one
Named Fiduciary is required by the Plan or the Trust Agreement to follow the directions of another
Named Fiduciary, the two Named Fiduciaries shall not be deemed to have been assigned a shared
responsibility, but the responsibility of the Named Fiduciary giving the directions shall be deemed
his sole responsibility, and the responsibility of the Named Fiduciary receiving those directions
shall be to follow them insofar as such instructions are on their face proper under applicable law.
Section 10.6
Employment of Advisers
.
A Named Fiduciary may employ one or more persons to render advice concerning any
responsibility such Named Fiduciary has under the Plan or Trust Agreement.
Section 10.7
Fiduciary in More Than One Capacity
.
Any person serving as a fiduciary may serve in more than one fiduciary capacity.
Section 10.8
Power to Construe and Interpret Plan.
(a) The Administrative Committee shall have the sole, absolute and exclusive right, power, and
discretionary authority to construe and interpret the provisions of the Plan, and all parts
thereof, and then administer the Plan for the best interests of the Participants and the
Beneficiaries. It may construe any ambiguity, or supply any omission, or reconcile any
inconsistencies in such manner and to such extent as it deems proper. The Administrative Committee
shall have further discretionary authority to determine all questions with respect to the
individual rights of the Employees under the Plan, including, but not by way of limitation, all
issues with respect to any Employees or Beneficiarys eligibility for benefits and Employees
earnings, compensation, service and retirement, as may be reflected by the records of the Employer,
and such other information on which these decisions shall be based. It is the intent of this Plan
that any court reviewing an action of the Administrative Committee shall apply the arbitrary and
capricious standard of review.
(b) The Administrative Committee shall be entitled to rely upon all certificates and reports
made by any duly appointed accountant, and upon all opinions given by any duly appointed legal
counsel.
Section 10.9
Indemnity Agreement
.
(a) The Employer shall indemnify and hold harmless each Administrative Committee Member from
any and all claims, losses, damages, expenses (including accounting, consulting and legal fees
approved by the Administrative Committee), and liabilities (including any amounts paid in
settlement with the Administrative Committees approval) arising from any
act or omission of such member, except, when the same is determined to be due to the gross
negligence or willful misconduct of such member.
- 35 -
(b) The Employer shall indemnify the Administrative Committee Members, the Trustee and any
employee of any Affiliate to whom the Administrative Committee or the Trustee has delegated
fiduciary duties against any and all claims, losses, damages, expenses and liabilities arising from
their responsibilities in connection with the Plan, unless the same is determined to be due to
gross negligence or willful misconduct.
Section 10.10
Costs
.
The Trust Fund shall be used to pay all expenses, costs and fees of the Administrative
Committee, to the extent such expenses, costs and fees are not paid by the Employer.
Section 10.11
Application and Forms for Benefits
.
The Administrative Committee may require a Participant or Beneficiary to complete and file
with the Administrative Committee an Application for Benefits and all other forms approved by the
Administrative Committee, and to furnish all pertinent information requested by the Administrative
Committee. The Administrative Committee may rely upon all such information so furnished it,
including the Participants current mailing address.
Section 10.12
Claims for Benefits
It shall not be necessary for a Participant or Beneficiary who has become entitled to receive
a benefit hereunder to file a claim for such benefit with any person as a condition precedent to
receiving a distribution of such benefit. However, any Participant or Beneficiary who believes
that he has become entitled to a benefit hereunder in excess of the benefit which he has received,
or commenced receiving, may file a written claim for such benefit with the Administrative
Committee. Such written claim shall set forth the Participants or Beneficiarys name and address
and a statement of the facts and a reference to the pertinent provisions for the Plan on which such
claim is based.
Section 10.13
Denial of Claims
.
(a) If the claim of any person (a Claimant) to all or any part of any payment or benefit
under this Plan shall be denied, the Administrative Committee shall provide to the Claimant, within
90 days after receipt of such claim, a written notice setting forth:
(1) the specific reason or reasons for the denial;
(2) the specific references to the pertinent Plan provisions on which the denial is based;
(3) a description of any additional material or information necessary for the Claimant to
perfect the claim and an explanation as to why such material or information is necessary; and
(4) a description of the Plans review procedures and the time limits applicable to those
procedures, including a statement of the Claimants right to bring a civil action under ERISA
Section 502(a) following an adverse decision on review by the Administrative Committee.
- 36 -
(b) If the Administrative Committee determines that special circumstances require an extension
of time beyond the initial 90-day period, the Administrative Committee shall provide to the
Claimant, within the initial 90-day period, a written notice of such extension stating the special
circumstances requiring the extension and the date by which the Administrative Committee expects to
make its determination (which date will not be later than 90 days after the end of the initial
90-day period).
Section 10.14
Appeal of Denied Claim
.
(a) Within 60 days after receipt of a notice of denial of his claim for benefits, a Claimant
may request, upon written application to the Administrative Committee, a review by the
Administrative Committee of its decision denying the Claimants claim. The Administrative
Committee shall provide the Claimant the opportunity to submit written comments, documents, records
and other information relating to his claim for benefits, and shall provide the Claimant, upon
request and free of charge, reasonable access to and copies of pertinent documents. The
Administrative Committee shall make a full and fair review, and shall make its decision on review
by taking into account all comments, documents, records and other information submitted by the
Claimant, regardless of whether such comments, documents, records and other information were
considered by the Administrative Committee when it initially denied the Claimants claim for
benefits.
(b) The Administrative Committee shall issue its decision on review of a Claimants denied
claim for benefits within a reasonable period of time, but not later than 60 days after the Plan
receives the Claimants request for a review. If the Administrative Committee determines that
special circumstances require an extension of time for processing a Claimants review request
beyond the initial 60-day period, the Administrative Committee shall provide the Claimant, within
the initial 60-day period, a written notice of such extension stating the special circumstances
requiring the extension and the date by which the Administrative Committee expects to make its
decision on review (which date will not be later than 60-days after the end of the initial 60-day
period). If the Administrative Committee grants an extension due to the Claimants failure to
submit information necessary to decide the Claimants claim, the period for making the decision on
review shall be tolled from the date on which the Administrative Committee sends the notice of
extension to the Claimant until the date on which the Claimant responds to the request for
additional information.
(c) The Administrative Committee shall notify a claimant of its decision on review in writing,
and if the decision is adverse, the notice shall set forth:
(1) the specific reasons for the decision;
(2) the specific references to the pertinent Plan provisions on which the decision on review
is based;
(3) a statement that the Claimant is entitled to receive, upon request and free of charge,
reasonable access to, and copies of, all documents and other information relevant to his claim for
benefits; and
- 37 -
(4) a statement of the Claimants right to bring a civil action under Section 502(a) of ERISA.
Section 10.15
Claims, Notices, Etc.
(a) Any claim, notice, application or other writing permitted or required to be filed with or
given to a party under this Article 12 shall be deemed to have been filed or given when deposited
in the U.S. mail, certified, postage prepaid, and properly addressed to the party to whom it is to
be given or with whom it is to be filed. Any such claim, notice, application, or other writing
deemed filed or given pursuant to the next foregoing sentence shall, in the absence of clear and
convincing evidence to the contrary, be deemed to have been received on the fifth business day
following the date upon which it was filed or given. Any such claim, notice, application or other
writing directed to the Administrative Committee shall be deemed properly addressed if addressed as
follows:
Administrative
Committee
Sanderson
Farms, Inc.
127 Flynt Road
Laurel, Mississippi 39441
(b) Any such notice, application, or other writing directed to a Participant or Beneficiary
shall be deemed properly addressed if directed to the address set forth in the written claim fled
by such Participant or Beneficiary.
ARTICLE 11
MODIFICATIONS FOR TOP HEAVY PLANS
Section 11.1
Application of Article
.
Prior to the allocation of Contributions for a Plan Year pursuant to Article 5 hereof, the
Administrative Committee shall determine whether the Plan constitutes a Top Heavy Plan during the
preceding Plan Year. If
.
a determination is made that this Plan constitutes a Top Heavy
Plan, then the provisions of this Article 11 shall be applicable notwithstanding any other
provisions of this Plan to the contrary.
Section 11.2
Definitions
.
(a)
Top Heavy Plan
: This Plan shall constitute a Top Heavy Plan for a Plan Year if,
as of the Determination Date (i) the aggregate of the Account balances of Key Employees exceeds
sixty percent (60%) of the aggregate of the Account balances of all Employees under the Plan, or
(ii) if the Plan is part of a Top Heavy Group.
(b)
Top Heavy Group
: This Plan shall be deemed to be a part of a Top Heavy Group if
the plans which make up the group of which this Plan is considered a part are such that, when
aggregated, the sum of (i) the present value of the cumulative accrued benefits of Key
- 38 -
Employees
under all defined benefit plans in the group, and (ii) the aggregate of the accounts of Key
Employees under all defined contribution plans in the group, exceed sixty percent (60%) of the sum
of such amounts for all employees who participate in the plans of such group. The group of plans of
which this Plan shall be considered a part includes: (i) all plans of the Employer and Affiliates
in which a Key Employee participates; (ii) all plans which enable a plan in which a Key Employee
participates to meet the qualification requirements of Section 401(a)(4) or Section 410 of the
Code; and (iii) all plans which the Employer, in its discretion, decides to include, provided that
the inclusion of such plan or plans would not prevent the group of plans from meeting the
qualification requirements of Section 401 (a)(4) and Section 410 of the Code.
(c)
Key Employee
: The term Key Employee means any Employee who, at any time during
the Plan Year in question or during any of the four (4) preceding Plan Years is (i) an officer of
the Employer having Annual Compensation which exceeds fifty percent (50%) of the amount in effect
under Section 415(b)(1)(A) of the Code for any such Plan Year (not to exceed the greater of three
(3) Employees or ten percent (10%) of the Employees), (ii) one (1) of the ten (10) Employees having
an annual compensation from the Employer of more than the limitation in effect under Section
415(c)(1)(A) of the Code and owning (or considered as owning within the meaning of Section 318 of
the Code) the largest interest in the Employer, (iii) a five percent (5%) (or greater) owner of the
Employer, or (iv) a one percent (1%) owner of the Employer having an Annual Compensation from the
Employer of more than two hundred thousand dollars ($200,000). For the purposes of applying the
terms of the preceding sentence; the provisions of Section 416(i) of the Code are incorporated
herein by reference.
(d)
Determination Date
: The term Determination Date means the last day of the Plan
Year immediately preceding the Plan Year for which a Top Heavy determination is made.
(e)
Annual Compensation
: The term Annual Compensation means compensation within the
meaning of Section 415(c)(3) of the Code.
Section 11.3
Amounts Included for Computation Purposes
.
For the purposes of this Section 11.3, in determining the present value of the cumulative
accrued benefit for any Employee or the amount of the Account of any Employee, there shall be
included therein the aggregate of all distributions made with respect to such Employee within the
five (5) year period ending on the Determination Date. The preceding sentence shall also apply to
distributions under a terminated plan which if it had not been terminated would have been required
to be included in an aggregation group described in Section 11.2(b) hereof. If an individual has
not received any Annual Compensation from any Employer (other than benefits under the Plan) at any
time during the five (5)-year period ending on the Determination Date, any accrued benefit for such
individual (and the Account of such individual) shall not be taken into account. Furthermore, the
accrued benefits and Account balances of any Employee who is not a Key Employee for the Plan Year
in question, but was a Key Employee in any previous Plan
Year, shall not be taken into consideration in making any of the computations required in this
Section 11.3.
Section 11.4
Accelerated Vesting
.
- 39 -
(a) For any Plan Year in which this Plan is deemed to be a Top Heavy Plan, the vesting
schedule contained in Section 6.1 hereof shall be modified as follows:
|
|
|
|
|
COMPLETE YEARS OF SERVICE
|
|
VESTED PERCENTAGE
|
1
|
|
|
0
|
%
|
2
|
|
|
20
|
%
|
3
|
|
|
40
|
%
|
4
|
|
|
60
|
%
|
5
|
|
|
80
|
%
|
6
|
|
|
100
|
%
|
(b) If this Plan is not deemed to be a Top-Heavy Plan after previously being so categorized,
then the vesting schedule contained in Section 6.1 hereof shall again be effective, except that the
vested percentage attained by Participants shall not be reduced thereby and Participants with three
(3) or more Years of Service for vesting shall have the right to select the vesting schedule under
which their vested accrued benefit will be determined.
Section 11.5
Minimum Contributions
.
(a) For any Plan Year in which this Plan is determined to be a Top Heavy Plan, a minimum
Employer contribution shall be made, under this Plan or another defined contribution plan
maintained by the Employers, to the account of each non-Key Employee with a Year of Service for
accrual of benefits.
(b) For the purposes of the first sentence of this Section 11.5, the minimum Employer
contribution provided to each non-Key Employee with a Year of Service for accrual of benefits shall
be equal to three percent (3%) of such non-Key Employees Annual Compensation. If, however, the
Employer contribution under this and any other defined contribution plan required to be included in
the Top-Heavy Group and maintained by the Employer for any Key Employee for such Plan Year is less
than three percent (3%) of such Key Employees total Annual Compensation, then the Employer
contribution for each Employee with a Year of Service for accrual of benefits shall equal the
amount which results from multiplying such Employees Annual Compensation times the highest
contribution rate for the purpose of the preceding sentence. For purposes of this Section 11.5, a
non-Key Employee who is a Participant and is employed on the last day of the Plan Year shall be
deemed to have a Year of Service for purposes of accrual of benefits for that Plan Year.
Section 11.6
Modification of Top-Heavy Rules
(a) Effective date. This Section shall apply for purposes of determining whether the plan is
a Top-Heavy Plan for Plan Years beginning after December 31, 2001, and whether the Plan satisfies
the minimum benefits requirements of Section 416(c) of the Code for such years. This Section
amends this Article 11.
(b) Determination of Top-Heavy status.
(1) Key Employee. Key Employee means any Employee or former Employee (including any deceased
Employee) who at any time during the Plan Year that
- 40 -
includes the Determination Date was an officer
of the Employer having Annual Compensation greater than $130,000 (as adjusted under Section
416(1)(1) of the Code for Plan Years beginning after December 31, 2002), a 5-percent owner of the
Employer, or a 1-percent owner of the Employer having Annual Compensation of more than $150,000.
The determination of who is a Key Employee will be made in accordance with Section 416(1)(1) of the
Code and the applicable regulations and other guidance of general applicability issued thereunder.
(c) Determination of present values and amounts. This Section 11.6 shall apply for purposes
of determining the present values of accrued benefits and the amounts of Account balances of
Employees as of the Determination Date.
(1) Distributions during Plan Year ending on the Determination Date. The present values of
accrued benefits and the amounts of Account balances of an Employee as of the Determination Date
shall be increased by the distributions made with respect to the Employee under the Plan and any
plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending
on the Determination Date. The preceding sentence shall also apply to distributions under a
terminated plan which, had it not been terminated, would have been aggregated with the Plan under
Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than
separation from service, death, or disability, this provision shall be applied by substituting
5-year period for 1-year period.
(2) Employees not performing services during year ending on the Determination Date. The
accrued benefits and Accounts of any individual who has not performed services for the Employers
during the 1-year period ending on the Determination Date shall not be taken into account.
(d) Minimum benefits; Matching contributions. Employer matching contributions shall be taken
into account for purposes of satisfying the minimum contribution requirements of Section 416(c)(2)
of the Code and the Plan. The preceding sentence shall apply with respect to matching
contributions under the Plan or, if the Plan provides that the minimum contribution requirement
shall be met in another plan, such other plan. Employer matching contributions that are used to
satisfy the minimum contribution requirements shall be treated as matching contributions for
purposes of the actual contribution percentage test and other requirements of Section 401(m) of the
Code.
ARTICLE 12
AMENDMENT, MERGER, CONSOLIDATION OR TRANSFER OF ASSETS;
TERMINATION OR DISCONTINUANCE
Section 12.1
Amendment
.
The Company shall have the right at any time, and from time to time, to amend, in whole or in
part, any or all of the provisions of this Plan by action of the Board. No amendment to the Plan
shall reduce the Account balance of any Participant prior to the amendment. Furthermore, no
amendment to the Plan shall have the effect of decreasing a Participants vested interest
determined without regard to such amendment as of the later of the date such amendment is
- 41 -
adopted
or the date it becomes effective. For purposes of determining
whether
or not
any Participants Account balance is decreased, all the provisions of the Plan affecting directly
or indirectly the computation of Account balances which are amended with the same adoption and
effective dates shall be treated as one Plan amendment.
Section 12.2
Merger, Consolidation, or Transfer of Assets
.
In the case of any merger or consolidation with or transfer of assets or liabilities to, or
any other plan, each Participant would or shall (if the Plan then terminated) receive a benefit
immediately after the merger, consolidation or transfer which is equal to or greater than the
benefit the Participant would have been entitled to receive immediately before the merger,
consolidation or transfer (if the Plan had been terminated).
Section 12.3
Termination; Discontinuance of Contributions
.
(a) The Company through action of its Board shall have the right at any time to terminate the
Plan in whole or in part or to permanently or temporarily discontinue Contributions hereunder. A
certified copy of such resolutions shall be delivered to the Administrative Committee and to the
Trustee.
(b) Upon termination of the Plan or discontinuance of Contributions hereunder, each affected
Participant shall immediately vest in his Accounts hereunder. Upon such termination or
discontinuance of Contributions, the Trust Fund shall nevertheless continue, and the Trustee is
authorized to continue to hold and administer the Trust Fund for the benefits, rights, and
privileges as hereinabove provided. The Trustee may distribute to the Participants or their
Beneficiaries their vested Account balances, if the Participants or their Beneficiaries so request,
or make distributions at some future dates pursuant to the provisions of Article 7 hereof, provided
that the method or methods of distribution adopted do not discriminate in favor of highly
compensated employees of the Employer, within the meaning of Section 414(q) of the Code.
(c) Until the final distribution of the Trust Fund, the Trustee shall continue to have all the
powers provided under this Plan and the Trust Agreement as are necessary and expedient for the
orderly administration, liquidation and distribution of the Trust Fund.
ARTICLE 13
MISCELLANEOUS
Section 13.1
Nonalienation of Benefits
.
(a) Except with respect to federal income tax withholding, benefits payable under this Plan
shall not be subject- in any. manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or
involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber,
charge or otherwise dispose of any right to benefits payable hereunder, shall be void.
- 42 -
The Trust
Fund shall not in any manner be liable for, or subject to, the debts, contracts, liabilities,
engagements or torts of any person entitled to benefits hereunder.
(b) The preceding paragraph shall also apply to the creation, assignment or recognition of a
right to any benefit payable with respect to a Participant pursuant to a domestic relations order,
unless such order is determined to be a qualified domestic relations order, as defined in Section
414(p) of the Code.
Section 13.2
Qualified Domestic Relations Order
.
The Administrative Committee shall comply with the terms of any judgment, decree or order
(including approval of a property settlement agreement) which is a qualified domestic relations
order, within the meaning of Section 414(q) of the Code.
Section 13.3
No Guarantee of Employment
.
Except as otherwise provided by law and as provided herein, the adoption of this Plan shall
not be construed as giving any Employee or any other person any legal or equitable right against
the Employers, or any officer or Employee thereof, the Administrative Committee established in
connection herewith, the Trustee or the principal and income of the Trust Fund or any equity or
interest in the assets, business or affairs of the Employer, unless such right, equity or interest
is specifically provided for in this Plan, nor shall it be construed as giving any Employee the
right to be retained in the service of the Employer.
Section 13.4
Authorization to Withhold Taxes
.
The Trustee is authorized in accordance with applicable law to withhold from distribution to
any payee such sums as may be necessary to cover federal and state taxes which may be due with
respect to such distributions.
Section 13.5
Delegation of Authority by Employer
.
Whenever the Employer under the terms of this Plan is permitted or required to do or perform
any action or matter or thing, it shall be done and performed by any of the Employers officers
thereunto duly authorized by the Employers Boards of Directors.
Section 13.6
Number and Gender
.
Whenever any words are used herein in the singular number or masculine gender, they shall be
construed as though they were also used in the plural number or feminine gender in all cases where
they would so apply.
Section 13.7
Legal Actions
.
(a) Except as may be specifically provided for by law, in any action or proceeding involving
this Plan and the Trust Fund, or any property constituting part or all thereof, or the
administration thereof, the Employer and the Trustee shall be the only necessary parties and no
Employees or former Employees of the Employer or their Beneficiaries or any other person having or
claiming to have an interest in the Trust Fund or under this Plan shall be entitled to any notice
of process. Service of process for any actions relation to the Plan and Trust Fund may be made on
the Employer.
(b) Except as may be specifically provided for by law, any final judgment which is not
appealed or appealable that may be entered in any such action or proceeding shall
- 43 -
be binding and
conclusive on the parties hereto and all persons having or claiming to have any interest under this
Plan or in the Trust Fund.
Section 13.8
Delays in Distribution
.
Notwithstanding any other provisions of this Plan and the Trust Agreement, the Trustee may
delay distribution to a Participant or, his Beneficiary or Beneficiaries of Shares of Qualifying
Employer Securities pursuant to this Plan until one of the following conditions shall have been
satisfied:
(a) The shares with respect to which distribution of an Account is to be made are at the time
of distribution effectively registered under the Securities Act of 1933 as now in force or
hereafter amended.
(b) A no-action letter in respect of the distribution of such shares shall have been obtained
by the Employer from the Securities Exchange Commission; or
(c) Counsel for the Employer shall have given an opinion, which opinion shall not be
unreasonably conditioned or withheld, that such shares are exempt from registration under the
Securities Act of 1933 as now in force or hereafter amended, and are nonrestricted upon transfer.
Section 13.9
Plan Document Location
.
Official copies of this Plan and the Trust Agreement shall be available for inspection by
Participants, their Beneficiaries and other persons with a legal or equitable interest under the
Plan or in the Trust Fund, at the principal offices of the Employer located at 127 Flynt Road,
Laurel, Mississippi 39443,
Section 13.10
Plan Terms Control
.
In any instances where the provisions or terms of this Plan are inconsistent with or conflict
with the terms of the Trust Agreement, the provisions or terms of this Plan shall, govern or
control the matter to be interpreted or resolved.
Section 13.11
Severability
.
Each provision of this Plan maybe severed. If any provision is determined to be invalid- or
unenforceable, that determination shall not affect the validity or enforceability of any other
provision.
Section 13.12
Governing Law
.
The provisions of this Plan shall be construed, administered, and governed under the laws of
the State of Mississippi and, to the extent applicable, by the laws and regulations of the United
States.
ARTICLE 14
CONCERNING QUALIFIED MILITARY SERVICE
Notwithstanding the provisions of this Plan to the contrary, effective December 12, 1994,
contributions, benefits and service with respect to qualified military service shall be provided in
accordance with Section 414(u) of the Code.
- 44 -
ARTICLE 15
MINIMUM DISTRIBUTION REQUIREMENTS
Section 15.1
General Rules
.
(a)
Effective Date
. The provisions of this Article 15 will apply for purposes of
determining required minimum distributions for calendar years beginning with the 2003 calendar
year.
(b)
Precedence
. The requirements of this Article will take precedence over any
inconsistent provisions of the Plan.
(c)
Requirements of Treasury Regulations Incorporated
. All distributions required
under this Article will be determined and made in accordance with the Treasury regulations under
Section 401(a)(9) of the Code.
(d)
TEFRA Section 242(b)(2) Elections
. Notwithstanding the other provisions of this
Article, distributions may be made under a designation trade before January 1,
1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act
(TEFRA) and the provisions of the Plan that relate to section 242(b)(2) of TEFRA.
Section 15.2
Time and Manner of Distribution
.
(a)
Required beginning
. The Participants entire interest will be distributed, or
begin to be distributed, to the Participant no later than the Participants required beginning date
which for Plan Years commencing after October 30, 1999 shall be:
(1) For a Participant who is a 5% owner (as defined in Section 416 of the Code), the required
beginning date is April 1 following the calendar year in which the Participant attains age 70
1
/
2
.
(2) For a Participant who is not a 5% owner, the required beginning date is April 1 following
the later of (i) the calendar year in which the Participant attains age 70
1
/
2
, and (ii) the calendar
year in which the Participant retires; however, such Participant who attains age 70
1
/
2
before 1999
may elect to commence distributions by April 1 of the calendar year following the calendar year in
which he attains age 70
1
/
2
, or elect to defer payment until April 1 of the calendar year following
the calendar year in which the Participant retires.
(b)
Death of Participant Before Distributions Begin
. If the Participant dies before
distributions begin, the Participants entire interest will he distributed, or begin to be
distributed, no later than as follows:
(1) If the Participants surviving spouse is the Participants sole designated Beneficiary,
distributions to the surviving spouse will begin by December 31 of the calendar year immediately
following the calendar year in which the Participant died, or by December 31 of the calendar year
in which the Participant would have attained age 70
1
/
2
, if later.
- 45 -
(2) If the Participants surviving spouse is not the Participants sole designated
Beneficiary, distributions to the designated Beneficiary will begin by December 31 of the calendar
year immediately following the calendar year in which the Participant died.
(3) If there is no designated Beneficiary as of September 30 of the year following the year of
the Participants death, the Participants entire interest will be distributed by December 31 of
the calendar year containing the fifth anniversary of the Participants death.
(4) If the Participants surviving spouse is the Participants sole designated Beneficiary and
the surviving spouse dies after the Participant but before distributions to the surviving spouse
begin, this Section 15.2, other than Section 15.2(b)(1), will apply as if the surviving spouse were
the Participant.
For purposes of this Section 15.2(b) and 15.4 hereof, unless Section 15.2(b)(4) applies,
distributions are considered to begin on the Participants required beginning date. If Section
15.2(b)(4) applies, distributions are considered to begin on the date distributions are required to
begin to the surviving spouse under Section 15.2(b)(1). If distributions under an annuity
purchased from an insurance company irrevocably commence to the Participant before the
Participants required beginning date (or to the Participants surviving spouse before the date
distributions are required to begin to the surviving spouse under Section 15.2(b)(1)), the
date distributions are considered to begin is the date distributions actually commence.
(c)
Forms of Distribution
. Unless the Participants interest is distributed in the
form of an annuity purchased from an insurance company or in a single sum on or before the required
beginning date, as of the first distribution calendar year distributions will be made in accordance
with Sections 15.3 and 15.4 of this Article. If the Participants interest is distributed in the
form of an annuity purchased from an insurance company, distributions thereunder will be made in
accordance with the requirements of Section 401(a)(9) of the Code and the Treasury regulations
thereunder.
Section 15.3
Required Minimum Distributions During Participants Lifetime
.
(a)
Amount of Required Minimum Distributions for Each Distribution Calendar Year
.
During the Participants lifetime, the minimum amount that will be distributed for each
distribution calendar year is the lesser of:
(1) The quotient obtained by dividing the Participants account balance by the distribution
period in the Uniform Lifetime Table tier fourth in Section 1.401(a)(9)-9 of the Treasury
regulations, using the Participants age as of the Participants birthday in the distribution
calendar year; or
(2) If the Participants sole designated Beneficiary for the distribution calendar year is the
Participants spouse, the quotient obtained by dividing the Participants account balance by the
number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury
regulations, using the Participants and spouses attained ages as of the Participants and
spouses birthdays in the distribution calendar year.
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(b)
Lifetime Required Minimum Distributions Continue Through Year of Participants
Death
. Required minimum distributions will be determined under this Section 15.3 beginning
with the first distribution calendar year and up to and including the distribution calendar year
that includes the Participants date of death.
Section 15.4
Required Minimum Distributions After Participants Death
.
(a)
Death On or After Date Distributions Begin
.
(1)
Participant Survived by Designated Beneficiary
. If the Participant dies on or
after the date distributions begin and there is a designated Beneficiary, the minimum amount that
will be distributed for each distribution calendar year after the year of the Participants death
is the quotient obtained by dividing the Participants account balance by the longer of the
remaining life expectancy of the Participant or the remaining life expectancy of the Participants
designated Beneficiary, determined as follows:
(A) The Participants remaining life expectancy is calculated using the age of the Participant
in the year of death, reduced by one for each subsequent year.
(B) If the Participants surviving spouse is the Participants sole designated Beneficiary,
the remaining life expectancy of the surviving spouse is calculated for each distribution calendar
year after the year of the Participants death using the surviving spouses age as of the spouses
birthday in that year. For distribution calendar years after the year of the surviving spouses
death, the remaining life expectancy of the surviving spouse is calculated using the age of the
surviving spouse as of the spouses birthday in the calendar year of the spouses death, reduced by
one for each subsequent calendar year.
(C) If the Participants surviving spouse is not the Participants sole designated
Beneficiary, the designated Beneficiarys remaining life expectancy is calculated using the age of
the Beneficiary in the year following the year of the Participants death, reduced by one for each
subsequent year.
(2)
No Designated Beneficiary
. If the Participant dies on or after the date
distributions begin and there is no designated Beneficiary as of September 30 of the year after the
year of the Participants death, the minimum amount that will be distributed for each distribution
calendar year after the year of the Participants death is the quotient obtained by dividing the
Participants account balance by the Participants remaining life expectancy calculated using the
age of the Participant in the year of death, reduced by one for cash subsequent year.
(b)
Death Before Date Distributions Begin
.
(1)
Participant Survived by Designated Beneficiary
. If the Participant dies before
the date distributions begin and there is a Designated beneficiary, the minimum amount that will be
distributed for each distribution calendar year after the year of the Participants death is the
quotient obtained by dividing the Participants account balance by the remaining life expectancy of
the Participants designated Beneficiary, determined as provided in Section 15.4(a) hereof.
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(2)
No Designated Beneficiary
. If the Participant dies before the date distributions
begin and there is no designated Beneficiary as of September 30 of the year following the year of
the Participants death, distribution of the Participants entire interest will be completed by
December 31 of the calendar year containing the fifth anniversary of the Participants death.
(c)
Death of Surviving Spouses Before Distributions to Surviving Spouse Are Required to
Begin
. If the Participant dies before the date distributions begin, the Participants
surviving spouse is the Participants sole designated Beneficiary, and the surviving spouse dies
before distributions are required to begin to the surviving spouse under section 15.2(a)(1), this
Section 15.4(b) will apply as if the surviving spouse were the Participant.
Section 15.5
Definitions
.
(a)
Designated Beneficiary
. The individual who is designated as the Beneficiary under
Article 7 thereof and is the designated Beneficiary under Section 401(a)(9) of the Code and Section
1.401(a)(9)-1, Q&A-4, of the Treasury regulations.
(b)
Distribution calendar year
. A calendar year for which a minimum distribution is
required. For distributions beginning before the Participants death, the first distribution
calendar year is the calendar year immediately preceding the calendar year which contains the
Participants required beginning date. For distributions beginning after the Participants death,
the first distribution calendar year is the calendar year in which distributions are required to
begin under Section 15.2(b) hereof. The required minimum distribution for the Participants first
distribution calendar year will be made on or before the Participants required beginning date.
The required minimum distribution for other distribution calendar years, including the required
minimum distribution for the distribution calendar year in which the Participants required
beginning date occurs, will be made on or before December 31 of that distribution calendar year.
(c)
Life expectancy
. Life expectancy as computed by use of the Single Life Table in
Section 1.401(x)(9)-9 of the Treasury regulations.
(d)
Participants account balance
. The account balance as of the last valuation date
in the calendar year immediately preceding the distribution calendar year (valuation calendar year)
increased by the amount of any contributions made and allocated or forfeitures allocated to the
account balance as of dates in the valuation calendar year after the valuation date and decreased
by distributions made in the valuation calendar year after the valuation date. The account balance
for the valuation calendar year includes any amounts rolled over or transferred to the Plan either
in the valuation calendar year or in the distribution calendar year if distributed or transferred
in the valuation calendar year.
Section 15.6
Required Beginning Date
.
The date specified in Section 15.2(a) of this Article.
[signatures appear on the following page]
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IN WITNESS WHEREOF, the Employer has caused this Plan to be executed on the 27th day of July,
2006.
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SANDERSON FARMS, INC.
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By:
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/s/ D. Michael Cockrell
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D. Michael Cockrell
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Its: Treasurer and CFO
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ATTEST:
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By:
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/s/ James A. Grimes
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Its:
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Secretary
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