Item 1.01
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Entry into a Material Definitive Agreement.
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Credit Agreement
On April 28, 2017, Sanderson Farms, Inc. (the Registrant) entered into a Credit Agreement (the Credit Agreement) with BMO Harris
Bank, N.A., as agent and letter of credit issuer; BMO Harris Financing, Inc.; AgFirst Farm Credit Bank; Farm Credit Bank of Texas; Farm Credit Services of America, PCA; Regions Bank; Bank of the West;
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Farm Credit Services, PCA; AgStar Financial Services, PCA; Farm Credit Mid-America, PCA; United FCS, PCA d/b/a FCS Commercial Finance Group; Northwest Farm Credit Services, PCA; GreenStone
Farm Credit Services, ACA; U.S. Bank National Association; American AgCredit, PCA; Trustmark National Bank; Farm Credit West, PCA; and BankPlus.
The
Credit Agreement provides for a $900.0 million unsecured revolving credit facility on a committed basis with a five year maturity. Subject to the terms of the Credit Agreement, the Registrant may, on one or more occasions, elect to increase the
commitments under the credit facility or obtain term loans (in each case in an amount no less than $25.0 million), provided that any increase, together with the aggregate amount of any term loans issued, may not exceed $1,050.0 million. The Credit
Agreement has a maturity date of April 28, 2022.
The Registrant will pay interest, at its option, at a variable base or Eurodollar rate as
determined under the Credit Agreement. The Registrant is also obligated to pay an applicable margin over the base rate or Eurodollar rate, as well as a letter of credit participation fee and a commitment fee payable on the amount of the average
daily unused portion of the commitment, each according to its leverage ratio. If there is an event of default, loans outstanding will bear an additional 2.0% rate of interest. The Registrant must also pay a fronting fee of 0.125% of the face amount
of each standby letter of credit issued, as well as usual and customary administrative fees.
Up to $30.0 million of the new credit facility is available
for the issuance of standby and commercial letters of credit in the ordinary course of business. The agent has also established a $10.0 million swing line facility that will permit funding of small or late day draws that reduce available credit
under the facility, with the credit risk allocated ratably among the lenders. Swing line loans bear interest at the base rate plus the applicable margin or the rate offered by the swing line lender in its discretion. The Credit Agreement contains
restrictive covenants, which include maintaining a minimum tangible net worth of $850.0 million, subject to quarterly increases based in part on the Registrants quarterly consolidated net income; a maximum leverage ratio of 50%; and a
limitation on capital expenditures of $100.0 million during its fiscal year ending October 31, 2017 and increasing by $5.0 million during each fiscal year thereafter to and including fiscal year 2022, plus up to a $15.0 million carryover into
the fiscal year ending October 31, 2017 for unspent amounts during the fiscal year ended October 31, 2016, and up to a $20.0 million carryover into the immediately following fiscal year for unspent amounts during any fiscal year ending on
or after October 31, 2017 (with special limits to allow for an addition to the Jackson, Mississippi complex in the amount of $15.0 million, construction of a complex in Tyler, Texas in the amount of $200.5 million, construction of one
additional potential further processing complex in the amount of $60.0 million, construction of a second additional potential complex in the amount of $210.0 million, and up to $70.0 million for the purchase of up to three new aircraft before
October 31, 2020). The Registrant has a one-time right to increase the maximum leverage ratio by 5% in connection with the construction of either of the three new poultry complexes for the four fiscal quarters beginning on the first day of the
fiscal quarter in which the Registrant gives notice of its intent to exercise this right.
The facility also contains customary provisions relating to
acceleration of the Registrants payment obligations in an event of default, which include non-payment of interest, principal or fees; covenant defaults, subject to grace periods for certain covenants; inaccurate representations or warranties
in any material respect; commencement of insolvency or bankruptcy proceedings by or against the Registrant; a change in control; the entry of certain judgments against the Registrant and cross-defaults on other agreements evidencing indebtedness.
The Registrants obligations under the Credit Agreement are jointly and severally guaranteed by its wholly-owned subsidiaries under a Guaranty Agreement dated April 28, 2017.
Copies of the Credit Agreement and the Guaranty Agreement are filed as Exhibits 10.1 and 10.2, respectively, to this report and are incorporated herein by
reference. The descriptions above are summaries of the Credit Agreement and Guaranty Agreement and are qualified in their entirety by the complete text of those agreements.
Certain Relationships
From time to time, certain of the lenders under the Credit Agreement (and Prior Credit Agreement (as defined below)) and their related entities have engaged,
and may in the future engage, in commercial, investment banking and financial services transactions with the Registrant in the ordinary course of their business. They have received, and expect to receive, customary compensation and expense
reimbursement for these commercial and investment banking transactions. In addition, one of the Registrants directors, Toni D. Cooley, is a director of Trustmark National Bank and its parent company, Trustmark Corporation.
Item 1.02
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Termination of a Material Definitive Agreement.
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Also on April 28, 2017, upon entering into the
Credit Agreement described above, the Registrant terminated its Credit Agreement (the Prior Credit Agreement), dated as of April 24, 2015, with BMO Harris Bank, N.A., as agent and letter of credit issuer and BMO Harris Financing,
Inc.; Regions Bank; AgFirst Farm Credit Bank; U.S. Bank National Association; Farm Credit Services of America, PCA; Farm Credit Bank of Texas; Trustmark National Bank; Bank of the West; Farm Credit Mid-America, PCA; United FCS, PCA d/b/a FCS
Commercial Finance Group; GreenStone Farm Credit Services, ACA/FLCA; Farm Credit West, PCA; AgStar Financial Services, PCA; 1st Farm Credit Services, PCA; Northwest Farm Credit Services, PCA; American AgCredit, PCA and BankPlus. The Prior Credit
Agreement, which was described in the Registrants Current Report on Form 8-K filed on April 29, 2015 (which description is incorporated in this Item 1.02 by reference) provided for a $750.0 million unsecured revolving credit
facility. The Registrant did not incur any early termination penalties in connection with the termination of the Prior Credit Agreement. The Prior Credit Agreement provided for interest to be paid, at the Registrants option, at a variable base
or Eurodollar rate as determined under the Prior Credit Agreement. The Registrant was also obligated to pay an applicable margin over the base rate or Eurodollar rate, as well as a letter of credit participation fee and a commitment fee payable on
the amount of the average daily unused portion of the commitment, each according to its leverage ratio. If there was an event of default, loans outstanding would have borne an additional 2.0% rate of interest. The Registrant was also obligated to
pay a fronting fee of 0.125% of the face amount of each standby letter of credit issued, as well as usual and customary administrative fees. Up to $25.0 million of the credit facility under the Prior Credit Agreement was available for the issuance
of standby and commercial letters of credit in the ordinary course of business. The agent had also established a $10.0 million swing line facility that permitted funding of small or late day draws that reduced available credit under the facility,
with the credit risk allocated ratably among the lenders. The information provided in Item 1.01 of this report regarding relationships with certain of the lenders is incorporated by reference in this Item 1.02.