January 27, 1998
Dear Stockholder:
The 1998 Annual Meeting of Stockholders of the Company will be held in the
Petroleum Room of the Ramada Inn in Laurel, Mississippi, at 10:00 A.M. on
Thursday, February 19, 1998. The purposes of the Annual Meeting are set forth in
the accompanying Notice and Proxy Statement.
The 1997 Annual Report, which is enclosed, contains financial and other
information concerning the Company and its business for the fiscal year ended
October 31, 1997. The Annual Report is not to be considered part of the proxy
solicitation materials.
We cordially invite you to attend the Annual Meeting. If you cannot
attend, please complete and return the enclosed Proxy so that your vote can be
recorded.
Cordially,
/s/Joe F. Sanderson, Jr.
Joe F. Sanderson, Jr.
Chairman of the Board
1
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held February 19, 1998
To the Stockholders:
The Annual Meeting of Stockholders of Sanderson Farms, Inc. (the
"Company") will be held in the Petroleum Room of the Ramada Inn in Laurel,
Mississippi at 10:00 A.M. (local time) on Thursday, February 19, 1998, for the
following purposes:
(1) To elect three Class C Directors to serve until the 2001 annual
meeting;
(2) To consider and act upon a proposal to approve Article IV, Section 1
of the By-Laws of the Company, as amended, which Section is annexed as Exhibit A
to the accompanying Proxy Statement and pertains to an increase in the number of
Directors of the Company;
(3) To consider and act upon a proposal to ratify and approve the
selection of Ernst & Young LLP as the Company's independent auditors for the
fiscal year ending October 31, 1998; and
(4) To transact such other business as may properly come before the
meeting or any adjournments thereof.
The business to be transacted at the Annual Meeting is more fully
described in the accompanying Proxy Statement, to which reference is hereby
made.
2
<PAGE>
The Board of Directors has fixed the close of business on January 5, 1998
as the record date for determining stockholders entitled to notice of and to
vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS:
/s/James A. Grimes, Secretary
Dated: January 27, 1998
3
<PAGE>
PROXY STATEMENT
General
The accompanying Proxy is solicited by and on behalf of the Board of
Directors of Sanderson Farms, Inc. (the "Company"), P.O. Box 988, Laurel,
Mississippi 39441, in connection with the 1998 Annual Meeting of Stockholders to
be held February 19, 1998, and any adjournments of that meeting. Execution of
the Proxy will not in any way affect a stockholder's right to attend the meeting
and, upon revocation of the Proxy, to vote in person. Proxies may be revoked at
any time before they are voted by filing with the Secretary a written notice of
revocation or a duly executed Proxy bearing a later date. Unless they are
revoked, Proxies in the form enclosed, properly executed and received by the
Secretary of the Company prior to the Annual Meeting, will be voted at the
meeting as specified by the stockholder in the Proxy or, except with respect to
broker non-votes, if no specification is made in the Proxy, then FOR each of the
proposals set forth in the accompanying Notice of Annual Meeting of
Stockholders, and according to their discretion upon all other matters which may
properly come before the meeting. Broker non-votes will be treated as not
present for purposes of calculating the vote on a matter for which no
specification is made in the proxy, and will not be counted either as a vote FOR
or AGAINST a proposal or as an ABSTENTION with respect thereto. Abstentions will
not be counted either as a vote FOR or as a vote AGAINST a proposal. The cost of
soliciting Proxies is being paid by the Company.
The Company's 1997 Annual Report accompanies this Proxy Statement, but is
not to be considered a part of the proxy solicitation materials. The record date
for the Annual Meeting is January 5, 1998. These materials are being mailed to
stockholders on or about January 27, 1998.
4
<PAGE>
Capital Stock
The authorized capital stock of the Company consists of 5,000,000 shares
of non-voting preferred stock, of which 500,000 shares have been designated
Series A Junior Participating Preferred Stock, par value $100.00 per share, none
of which shares have been issued, and 100,000,000 shares of voting Common Stock,
par value $1.00 per share, of which 14,366,580 shares had been issued and were
outstanding as of January 5, 1998, the record date for the Annual Meeting. Only
stockholders of record at the close of business on such date are entitled to
notice of and to vote at the Annual Meeting. Each such stockholder is entitled
to one vote for each share of common stock held at that date.
Beneficial Ownership
The following table sets forth information, as of January 5, 1998,
concerning (a) the only stockholders known by the Company to own beneficially
more than 5% of the common stock of the Company, which is the only class of
voting securities outstanding, (b) the beneficial ownership of common stock of
the executive officers named in the "Summary Compensation Table" below, and (c)
the beneficial ownership of common stock by all directors and executive officers
of the Company as a group.
5
<PAGE>
<TABLE>
Amount
Beneficial Owner(s) Beneficially Percent
and Address Owned(1)(2) of Class
<CAPTION>
<S> <C> <C>
Estate of Joe Frank Sanderson (3) 3,273,385 shares 22.8%
Dewey R. Sanderson, Jr. (4) 3,268,482 shares 22.8%
Joe F. Sanderson, Jr. (5) 3,443,109 shares 24.0%
William R. Sanderson (6) 3,446,681 shares 24.0%
D. Michael Cockrell (7) 11,958 shares (12)
Trustmark National Bank (8) 1,612,407 shares 11.2%
Lampkin Butts (2) (9) 1,634,975 shares 11.4%
Robin Robinson (2) (10) 1,612,407 shares 11.2%
All Directors and executive
officers as a
group (12 persons) (11) 8,788,770 shares 61.2%
</TABLE>
(1) The shares are owned of record by the beneficial owners shown with
sole voting and investment power, except as set forth in the following notes.
(2) Lampkin Butts, Robin Robinson and Trustmark National Bank are the
trustees of the Employee Stock Ownership Plan and Trust of Sanderson Farms, Inc.
and Affiliates (the "ESOP"), which is the record owner of 1,612,407 shares of
common stock of the Company. Trustmark National Bank and Mr. Butts and Ms.
Robinson, in their respective capacities as trustees of the ESOP, share with
each other investment power with respect to those shares of common stock and
therefore are each deemed to beneficially own, under applicable regulations of
the Securities and Exchange Commission, the 1,612,407 shares of common stock
owned of record by the ESOP. With respect to the voting power of the 1,612,407
shares of common stock, the members of the Administrative Committee of the ESOP
share with each other voting power as to 3,443 shares, which are the shares of
common stock not allocated to participant accounts under the ESOP, and the
participants in the ESOP exercise sole voting power as to the 1,608,964 shares
allocated to their respective accounts under the ESOP.
6
<PAGE>
(3) On January 4, 1998, Joe Frank Sanderson died. The 3,273,385 shares
that Joe Frank Sanderson beneficially owned are now beneficially owned by the
Estate of Joe Frank Sanderson (the "Estate"). The co-executors of the Estate are
Joe Frank Sanderson's sons, Joe F. Sanderson, Jr. and William R. Sanderson. The
amount in the table includes 3,184,654 shares owned of record by the Estate and
88,731 shares allocated to the Estate's account under the ESOP, with respect to
each of which amount the co-executors of the Estate share voting power. The co-
executors share investment power with respect to the 3,184,654 shares owned of
record by the Estate. The trustees of the ESOP share investment power over the
88,731 shares allocated to the Estate's account under the ESOP.
(4) Address: P. O. Box 988, Laurel, Mississippi 39441. Includes 223,257
shares owned of record by Dewey R. Sanderson, Jr.'s wife, as to which she
exercises sole voting and investment power, and as to which Dewey R. Sanderson,
Jr., pursuant to Rule 13d-4, disclaims beneficial ownership.
(5) Address: P. O. Box 988, Laurel, Mississippi 39441. The amount shown in
the table includes 61,136 shares owned of record by Joe F. Sanderson, Jr., over
which he exercises sole voting and investment power, and 43,656 shares allocated
to Joe F. Sanderson, Jr.'s account in the Company's ESOP, with respect to which
he has sole voting power. The trustees of the ESOP share investment power over
the 43,656 shares allocated to Joe F. Sanderson, Jr.'s account under the ESOP.
The amount in the table includes the 3,273,385 shares beneficially owned by Joe
F. Sanderson, Jr. as co-executor of the Estate. The co-executors share voting
and investment power with respect to 3,184,654 of these shares. The co-executors
share voting power with respect to 88,731, and the trustees of the ESOP share
investment power over these 88,731 shares. The amount shown in the table also
includes 6,539 shares owned of record by Joe F. Sanderson, Jr.'s wife, over
which she exercises sole voting and investment power. The amount in the
7
<PAGE>
table also includes 58,393 shares owned of record by a charitable private
foundation established by Joe Frank Sanderson, for which Joe F. Sanderson, Jr.
serves as a director and as such, shares voting and investment power with the
other directors of the foundation with respect to such shares. Pursuant to Rule
13d-4, Joe F. Sanderson, Jr. disclaims beneficial ownership of the 6,539 shares
owned of record by his wife, the 3,184,654 shares owned of record by the Estate,
and the 88,731 shares allocated to the Estate's account under the ESOP, and the
58,393 shares owned of record by the foundation.
(6) Address: P. O. Box 988, Laurel, Mississippi 39441. At a special
meeting of the Board of Directors of the Company held on January 8, 1998, the
Directors, by unanimous vote and pursuant to Article IV, Section 8 of the
By-Laws of the Company, appointed William R. Sanderson to fill the unexpired
term of Class C Director Joe Frank Sanderson, who died on January 4, 1998, which
term expires at the Annual Meeting of Stockholders on February 19, 1998. The
amount in the table includes 136,350 shares owned of record by William R.
Sanderson, of which he exercises sole voting and investment power, 7,830 shares
allocated to his account under the ESOP, 8,460 shares owned of record by William
R. Sanderson's wife, of which she exercises sole voting and investment power,
and 20,656 owned by Mr. Sanderson as custodian for his minor children, of which
he exercises sole voting and investment power. The amount in the table includes
3,273,385 shares beneficially owned by William R. Sanderson as co-executor of
the Estate. The co-executors share voting and investment power with respect to
3,184,654 shares owned of record by the Estate. The co-executors share voting
power, and the trustees of the ESOP share investment power, with respect to
88,731 shares allocated to the Estate's account under the ESOP. Pursuant to
Rule 13d-4, William R. Sanderson disclaims the beneficial ownership of the
8,460 shares owned of record by his wife, the 3,184,654 shares owned of record
by the Estate, and the 88,731 shares allocated to the Estate's account under
the ESOP.
8
<PAGE>
(7) Address: P. O. Box 988, Laurel, Mississippi 39441. The amount shown in
the table includes 450 shares owned of record by Mr. Cockrell over which he
exercises sole voting and investment power, and 258 shares allocated to Mr.
Cockrell's account in the Company's ESOP, with respect to which Mr. Cockrell has
sole voting power. The trustees of the ESOP share investment power over the 258
shares allocated to Mr. Cockrell's account under the ESOP. The amount in the
table also includes 11,250 options to purchase shares owned by Mr. Cockrell
under the Company's Stock Option Plan, which options to purchase such shares
were exercisable on the date of this Proxy, and the exercise price of which
options was lower than the market price on that date.
(8) Address: 415 North Magnolia, Laurel, Mississippi 39940. See note (2)
above for a description of the nature of Trustmark National Bank's beneficial
ownership of the 1,612,407 shares of common stock owned of record by the ESOP.
Trustmark National Bank, pursuant to Rule 13d-4, disclaims beneficial ownership
of all shares of common stock owned of record by the ESOP, which constitute all
shares reported as being beneficially owned by it.
(9) Address: P. O. Box 988, Laurel, Mississippi 39441. See note (2) for a
description of the nature of Mr. Butts' beneficial ownership of the 1,612,407
shares of common stock owned of record by the ESOP. The amount in the table also
includes 3,773 shares owned of record by Mr. Butts, and 45 shares held as
custodian for a minor child, over which he exercises sole voting and investment
power. With respect to the 21,243 shares allocated to his account under the
Company's ESOP, Mr. Butts has sole voting power, but shares investment power
with the other trustees of the ESOP. The amount in the table also includes
18,750 options to purchase shares owned by Mr. Butts under the Company's Stock
Option Plan, which options to purchase such shares were exercisable on the date
of this Proxy, and the exercise price of which options were lower than the
market price
9
<PAGE>
of that date. Mr. Butts, pursuant to Rule 13d-4, disclaims beneficial ownership
of all shares of common stock owned of record by the ESOP, except the 21,243
shares allocated to his individual account, and the 45 shares held as custodian.
(10) Address: P. O. Box 988, Laurel, Mississippi 39441. See note (2) above
for a description of the nature of Ms. Robinson's beneficial ownership of the
1,612,407 shares of common stock owned of record by the ESOP. Ms. Robinson,
pursuant to Rule 13d-4, disclaims beneficial ownership of all shares of common
stock owned of record by the ESOP, except the 5,925 shares allocated to her
individual account. There are 5,925 shares allocated to Ms. Robinson's account
in the Company's ESOP, with respect to which Ms. Robinson has sole voting power,
but over which she shares investment power with the other trustees of the ESOP.
(11) Includes an aggregate of 178,635 shares allocated to the accounts of
all Directors and executive officers, including the Estate, as a group (13
persons, 6 participating) under the ESOP. See note (2) above.
(12) Less than 1%
ELECTION OF DIRECTORS
The amended Articles of Incorporation of the Company provide that the
Board of Directors shall be divided into three classes (Class A, Class B and
Class C), with each class containing one-third, or as close to one-third as
possible, of the total number of directors, and that the total number of
directors shall be fixed by the Board of Directors in the By-laws. At the
current time, the Board of Directors has fixed the number of directors at nine,
resulting in there being three directors in each class. Subject to approval by
the shareholders, the Board has proposed an amendment to the Company's By-Laws
which would increase the
10
<PAGE>
number of directors by three. See below under the heading "By-Law Amendment." At
each annual meeting of stockholders, directors constituting one class are
elected for a three-year term. At the 1998 Annual Meeting, stockholders will
elect three Class C directors, whose terms will expire at the 2001 annual
meeting.
Nominees for Class C Directors
The Board of Directors proposes for election as Class C Directors the
three nominees listed below, each to serve as a Class C Director until the 2001
annual meeting or until his successor is elected and has qualified. Any vacancy
on the Board of Directors may be filled either by the Board of Directors or by
the stockholders, and any person elected to fill a vacancy will serve the
remainder of the term of the director whose position has become vacant.
Proxies in the enclosed form may also be voted for the election as Class C
Directors of substitute nominees who may be named by the Board of Directors to
replace any of the three nominees who become unavailable to serve for any
reason. (No such unavailability is presently known to the Board of Directors.)
In no event, however, will the Proxies be voted for more than three persons.
There are no arrangements or understandings relating to any person's service or
prospective service as a Class C Director of the Company. No nominee listed
below will be elected as a Class C Director unless such nominee receives the
affirmative vote of the holders of a majority of the shares entitled to vote and
represented (whether in person or by proxy) at the Annual Meeting at which a
quorum is present. If more nominees than the number of Directors to be elected
receive a majority vote, then those nominees, up to three persons, receiving the
highest number of votes will be elected. Abstentions will not be counted either
as a vote FOR or as a vote AGAINST the nominees for Class C Directors. Broker
non-votes
11
<PAGE>
will be treated as not present for purposes of calculating the vote with respect
to the election of the Class C Directors, and will not be counted either as a
vote FOR or AGAINST or as an ABSTENTION with respect thereto.
The following table lists the nominees for Class C Director and shows, as
of January 5, 1998, their respective beneficial ownership of common stock of the
Company. Robert Buck Sanderson is the son of Dewey R. Sanderson, Jr. (Class B
Director), the nephew of the late Joe Frank Sanderson (former Class C Director),
and the cousin of Joe F. Sanderson, Jr. (Class A Director) and William R.
Sanderson (Class C Director). William R. Sanderson is the son of the late Joe
Frank Sanderson, the brother of Joe F. Sanderson, Jr. (Class A Director), the
nephew of Dewey R. Sanderson, Jr. (Class B Director), and the cousin of Robert
Buck Sanderson.
<TABLE>
Shares
Nominees for Director Beneficially Percent
Class C Director Age Since Owned (1) of Class
- ---------------- --- ----- ---------- --------
<CAPTION>
<S> <C> <C> <C> <C>
Class C (Term expiring in 2001)
William R. Sanderson (2) 41 1998 3,446,681 24.0%
Robert Buck Sanderson 44 1992 254,241 1.77%
Donald W. Zacharias 62 1988 1,500 (3)
</TABLE>
(1) The shares are owned of record by the beneficial owners shown with
sole voting and investment power, except as set forth in the notes below.
12
<PAGE>
(2) See note (6) to the table under the caption "Proxy Statement,
Beneficial Ownership" for a description of the nature of Mr. Sanderson's
beneficial ownership.
(3) Less than 1%.
Directors Continuing in Office
The following table lists the Class A and Class B Directors of the
Company, whose terms expire at the 1999 and 2000 annual meetings, respectively,
and shows, as of January 5, 1998, the beneficial ownership of common stock by
each of them. Joe F. Sanderson, Jr. (Class A Director) is the cousin of Robert
Buck Sanderson (Class C Director), the son of the late Joe Frank Sanderson
(former Class C Director), and the nephew of Dewey R. Sanderson, Jr. (Class B
Director). Dewey R. Sanderson, Jr. (Class B Director) is the father of Robert
Buck Sanderson(Class C Director), the brother of the late Joe Frank Sanderson
(former Class C Director), and the uncle of Joe F. Sanderson, Jr. (Class A
Director).
13
<PAGE>
<TABLE>
Shares
Name of Director Beneficially Percent
Continuing Director Age Since Owned (1) of Class
- ------------------- ---- ----- --------- --------
<CAPTION>
<S> <C> <C> <C> <C>
Class A (Term expiring in 1999)
Joe F. Sanderson, Jr. (2) 51 1984 3,443,109 24.0%
Charles W. Ritter, Jr. 64 1988 12,000 (6)
Phil K. Livingston (3) 54 1989 7,700 (6)
Class B (Term expiring in 2000)
Dewey R. Sanderson, Jr. (4) 75 1955 3,268,482 22.7%
Rowan H. Taylor 72 1989 5,500 (6)
John H. Baker, III (5) 56 1994 60,000 (6)
</TABLE>
- --------------------------
(1) The shares are owned of record by the beneficial owners shown with
sole voting and investment power, except as set forth in the following notes.
(2) See note (5) to the table under the caption "Proxy Statement,
Beneficial Ownership" for a description of the nature of Mr. Sanderson's
beneficial ownership.
(3) Mr. Livingston owns 6,455 shares of common stock of the Company
through an IRA, over which he exercises sole voting and investment power. A
retirement account belonging to Mr. Livingston's wife owns of record 1,245
shares, over which she exercises sole voting and investment power, and as to
which Mr. Livingston, pursuant to Rule 13d-4, disclaims beneficial ownership.
(4) See note (4) to the table under the caption "Proxy Statement,
Beneficial Ownership" for a description of the nature of Mr. Sanderson's
beneficial ownership.
(5) The amount in the table includes 30,000 shares owned of record by Mr.
Baker's wife, as to which she exercises sole voting and investment power, and
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<PAGE>
30,000 shares owned of record by a trust for the benefit of Mr. Baker's
daughter, as to which an institutional trustee exercises sole voting and
investment power, and as to all of which Mr. Baker, pursuant to Rule 13d-14,
disclaims beneficial ownership.
(6) Less than 1%.
Principal Occupations and Certain Directorships
The following paragraphs identify the principal occupations of all
Directors of the Company and directorships they hold in other companies with
securities registered with the Securities and Exchange Commission. Except as
otherwise indicated, each Director has served for at least five years in the
position shown.
Joe F. Sanderson, Jr. has served as President and Chief Executive Officer
of the Company since November 1, 1989, and as Chairman of the Board since
January 8, 1998. From January 1984, through October 1989, Mr. Sanderson served
as Vice-President, Processing and Marketing, of the Company. Mr. Sanderson is
a member of the Executive Committee of the Company.
Charles W. Ritter, Jr. has served, since 1967, as President and a Director
of the Attala Company, which is principally engaged in the business of milling
and selling feed and corn meal. He has also served as President of JRS, Inc.,
a family owned real estate investment firm, since 1973. Mr. Ritter is a
director of First M & F Corp. and Merchants & Farmers Bank, Kosciusko,
Mississippi.
15
<PAGE>
Phil K. Livingston served as President and Chief Executive Officer of
Citizens National Bancshares, Inc. in Hammond, Louisiana, from its organization
in 1983, until its merger into Deposit Guaranty Corporation on May 19, 1995.
Citizens National Bancshares, Inc., which was dissolved with the merger, was the
parent company of Citizens National Bank, which is now a wholly owned subsidiary
of Deposit Guaranty Corporation as a result of such merger. In July 1996, the
Citizens National Bank's charter was amended to change its name to Deposit
Guaranty National Bank of Louisiana. Mr. Livingston continues to serve as Chief
Executive Officer and Chairman of the Deposit Guaranty National Bank of
Louisiana.
Dewey R. Sanderson, Jr., a founder of the Company, has been retired for
more than the past five years.
Rowan H. Taylor served as President of Mississippi Valley Title Insurance
Company from 1975 until 1989, and as Chairman of the Board and Chief Executive
Officer of that company from 1989 until 1992. Mr. Taylor currently serves as
counsel for First American Title Insurance Company of Santa Anna, California,
and as counsel to the Jackson, Mississippi law firm of Alston & Jones.
Mr. Taylor served as an advisory director of Trustmark Corporation
and Trustmark National Bank located in Jackson, Mississippi until his retirement
from such position in 1995.
John H. Baker, III has been the sole proprietor of John H. Baker
Interests, a real estate and development company in Houston, Texas since 1968.
Donald W. Zacharias served as President of Mississippi State
University from 1995 until his retirment in December 1997.
16
<PAGE>
Robert Buck Sanderson has been employed by the Company since January 1,
1993. From 1978 through 1992, Mr. Sanderson served as President of Pioneer
Hardware & Supply Co., Inc. in Laurel, Mississippi.
William R. Sanderson has served, since 1996, as Director of Marketing for
the Company. Prior to 1996, Mr. Sanderson served as Director of Prepared Foods
for the Company. Mr. Sanderson is a member of the Executive Committee of the
Company.
Committees of the Board of Directors; Attendance at Meetings
The Company's Board of Directors has not appointed any standing committees
as of the date of this proxy statement, except an Audit Committee. The members
of the Audit Committee are Messrs. Ritter, Livingston and Zacharias. The
function of the Audit Committee is, among other things, to recommend the
independent auditors to the Board of Directors, to review the scope of the
independent auditors' audit, to review the Company's major accounting and
financial reporting policies and practices and systems for compliance with
applicable statutes and regulations, and to review the Company's internal
auditing functions. During the fiscal year ended October 31, 1996, the Board of
Directors met 6 times and the Audit Committee met 4 times. Each incumbent
Director attended at least 75% of the aggregate of (i) the total number of Board
of Directors meetings held during the period for which he was a director and
(ii) the total number of meetings held by the Audit Committee, as applicable,
except for the late Joe Frank Sanderson, who attended no meetings during the
year.
17
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, officers and persons who own more than 10% of the
outstanding common stock of the Company, to file with the Securities and
Exchange Commission reports of changes in ownership of the common stock of the
Company held by such persons. Officers, directors and greater than 10%
stockholders are also required to furnish the Company with copies of all forms
they file under this regulation. Based solely on a review of the copies of the
reports furnished to the Company, the officers and directors of the Company are
in full compliance with all Section 16(a) filing requirements.
Executive Compensation
The following table sets forth the cash compensation paid or to be paid by
the Company, as well as certain other compensation paid or accrued, during the
fiscal years indicated, to the named executive officers.
18
<PAGE>
<TABLE>
Summary Compensation Table
Annual Compensation
(a) (b) (c) (d) (e) (g)
Name and All Other Securities
Principal Position Year Salary Bonus Compensation Underlying
($) ($)(1) ($)(3) Options/SARs (#)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Joe F. Sanderson, Jr. 1997 361,934 -0- 32,597 60,000
Chief Executive Officer 1996 383,260 -0- (3) -0-
and President 1995 305,000 -0- 2,560 -0-
D. Michael Cockrell 1997 151,430 -0- 320 15,000
Treasurer and 1996 144,116 -0- (3) 7,500
Chief Financial Officer 1995 135,384 -0- 2,310 7,500
Lampkin Butts 1997 154,264 -0- 450 15,000
Vice President - Sales 1996 149,695 -0- (3) 7,500
1995 (2) (2) (2) 7,500
</TABLE>
(1) The amounts in this column represent the bonuses paid to the named
individuals pursuant to the Company's Bonus Award Program, which covers all
salaried employees of the Company.
(2) Mr. Butts became an executive officer of the Company effective
November 1, 1996. Mr. Cockrell became an executive officer of the Company during
fiscal 1994.
(3) The amounts in this column represent the value of the contribution
made by the Company to the accounts of the named individuals under the Company's
Employee Stock Ownership Plan, and includes travel costs and amounts reimbursed
for estimated income tax liability related thereto. Although all employees of
the Company, including executive officers, participate in the Company's ESOP,
the Company made no contribution to the ESOP in 1996 or 1997. The amounts shown
for 1997 represent only travel costs and related amounts as described above. The
amounts in this column represent the value of the 1995 contributions made by the
19
<PAGE>
Company to the accounts of the named individuals under the ESOP Plan.
Allocations of gains, losses, forfeitures and any contributions to participants
under the ESOP are made in late January or early February of each year and
therefore, as of the date of this Proxy Statement, no amounts have been
allocated to the accounts of the named individuals under the ESOP with respect
to the fiscal year ended October 31,1997. The ESOP covers all employees of the
Company.
Stock Options Granted During Fiscal 1997 to the Named Executives The
following table shows all individual grants of stock options to the
named executives during the 1997 fiscal year.
<TABLE>
Potential
Realizable at
Number of % of Total Assumed Annual
Securities Options Rates of Stock
Underlying Granted to Appreciation for
Name and Options Employees in Exercise Exp. Option Term(2)
Principal Position Granted(1) Fiscal Year Price Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Joe F. Sanderson, Jr.
President and Chief
Executive Officer 60,000 28.91% $15.00 7/24/06 $496,195 $1,222,153
D. Michael Cockrell
Treasurer and Chief
Financial Officer 15,000 7.23% $15.00 7/24/06 $124,049 $305,538
Lampkin Butts
Vice President - Sales 15,000 7.23% $15.00 7/24/06 $124,049 $305,538
</TABLE>
(1) These shares represent options with respect to the Company's common stock.
The options are exercisable for a ten (10) year period beginning as of
July 24, 1997. Vesting begins at 25% on July 24, 1997, the end of the first
year, and continues at 25%. The exercise price of $15.00 represents the fair
market value of the common stock as of the date the options were granted.
Options that have not been exercised on July 24, 2006 will expire.
Unvested options are forfeited upon termination of employment or the appointment
or transfer of the optionee to a position within the Company that does not
qualify for participation in the Company's Stock Option Plan. These options
do not qualify as "incentive stock options" under the Internal Revenue Code.
2) Potential realizable values are based on the assumption that the common stock
price appreciates at annual rates shown compounded annually from the date of
grant until the end of the ten (10) year option term and are not intended to
forecast appreciation in stock price. The common stock price at the end of the
10 year term based on a 5% annual appreciation would be $23.27 and on a 10%
annual appreciation would be $35.37.
20
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table sets forth the value at December 31, 1997 of
unexercised options for each of the named executive officers.
<TABLE>
Options at Value of Unexercised In-the-Money
Fiscal Year-End (#) Options at December 31, 1996(3)
Name Exercisable Unexercisable Exercisable Unexercisable
<CAPTION>
<S> <C> <C> <C> <C>
Joe F. Sanderson, Jr. 0 60,000 $ 0 $ 0
D. Michael Cockrell(1) 11,250 26,250 $38,681.25 $39,168.75
Lampkin Butts(2) 18,750 26,250 $67,406.25 $39,168.75
</TABLE>
(1) Mr. Cockrell's options consist of the following:
- 7,500 shares granted on April 29, 1994, at $11.00 per share,
expiring April 29, 2000, of which 5,625 are exercisable.
- 7,500 shares granted on April 27, 1995, at $11.25 per share,
expiring April 27, 2001, of which 3,750 are exercisable.
- 7,500 shares granted on July 25, 1996, at $10.87 per share, expiring
July 25, 2002, of which 1,875 are exercisable.
- 15,000 shares granted on July 24, 1997, at $15.00 per share,
expiring
July 23, 2006, of which none are exercisable.
(2) Mr. Butts' options consist of the following:
- 7,500 shares granted on July 12, 1993, at $10.67 per share, expiring
July 12, 1999, of which 7,500 are exercisable.
- 7,500 shares granted on April 29, 1994, at $11.00 per share,
expiring April 29, 2000, of which 5,625 are exercisable.
- 7,500 shares granted on April 27, 1995, at $11.25 per share,
expiring April 27, 2001, of which 3,750 are exercisable.
- 7,500 shares granted on July 25, 1996, at $10.87 per share, expiring
July 25, 2002, of which 1,875 are exercisable.
- 15,000 shares granted on July 24, 1997, at $15.00 per share,
expiring July 23, 2006, of which none are exercisable.
(3) Amounts represent the excess of the market value over the exercise price
as of December 31, 1997.
21
<PAGE>
Director's Fees
During fiscal 1997, Directors who were not also officers or employees of
the Company received a fee of $2,000 per meeting attended plus an annual stipend
of $10,000.
Board Report on Executive Compensation
The Company did not have a standing Compensation Committee for fiscal
year ended 1997(although, as described below, they did have a special
Compensation Committee) and therefore the Board of Directors prepared the
following Report. The Board of Directors did appoint a special Compensation
Committee during the fiscal year ended October 31, 1997 to review, and to make
recommendations to the full Board of Directors with respect to, the level of
stock options granted to key employees under the Company's Stock Option Plan,
the appropriate level of management to whom stock options under such plan should
be granted, the competitiveness of the Company's executive compensation package,
and the Company's Bonus Award Program.
Generally, executive officer compensation is not directly related to
factors such as profitability, sales growth, return on equity or market share,
except to the extent that such factors impact the Company's overall ability to
satisfy its compensation obligations to all employees.
Annual compensation for the President and Chief Executive Officer
("CEO"), and the Chairman of the Board, is determined by the full Board of
Directors of the
22
<PAGE>
Company. For fiscal 1997, a special Compensation Committee of the Company's
Board of Directors made recommendations to the full Board relating to stock
option awards to executive officers and other key personnel pursuant to the
Company's Stock Option Plan. The annual compensation for the Treasurer and Chief
Financial Officer ("CFO") and the Vice President-Sales ("VP-Sales") is
determined by the President. The components of the annual compensation paid to
the CEO, CFO and VP- Sales are as follows: (i) base salary; (ii) a bonus
calculated pursuant to the provisions of the Company's Bonus Award Program;
(iii) stock option awards made under the Company's Stock Option Plan; and (iv)
allocation of contributions made by the Company to the respective accounts of
the CEO, CFO and VP-Sales under the ESOP.
Base salaries for executive officers of the Company are originally fixed
using a comparison of similarly situated officers of other poultry companies.
Also taken into account are benefits, years of service, responsibilities,
Company growth, future plans and the Company's current ability to pay. Periodic
increases in base salary are based on evaluations of past and current
performance and current market conditions. In addition, in accordance with the
Company's Wage and Salary Administration manual in effect since 1979, the base
salary of each salaried employee of the Company, including the executive
officers, is increased on January 1 of each year to reflect cost of living
increases, provided that the Company is in a financial position to make an
increase. In January 1997, the base salary of all salaried employees of the
Company, including the executive officers, was increased by 2.0%. The cost of
living increase for 1998, which took effect January 1, 1998, was 1.5%.
23
<PAGE>
The CEO, CFO and VP are participants in the Company's Bonus Award
Program, which covers all salaried employees of the Company. The amounts payable
to all salaried employees, including the executive officers, are based on the
Company's financial performance and its operating performance relative to others
in the industry. The bonus for the CEO, CFO and VP-Sales is calculated by
multiplying such person's average monthly salary by 12 and multiplying that
product by a percentage ranging from 25% to 100% for the CEO, and from 17.5% to
70% for the CFO and VP-Sales, depending on the performance of the Company. No
bonuses were paid for fiscal 1994, 1995, or 1996, and no bonuses have been or
will be paid for fiscal 1997.
In addition, all executive officers participate in the Company's Employee
Stock Ownership Plan which covers all employees of the Company. Allocations to
the executive officers under this plan are made on the same basis as allocations
to all other participants. No contribution was made by the Company to the ESOP
during fiscal 1997 or 1996.
Joe F. Sanderson, Jr. Charles W. Ritter, Jr.
William R. Sanderson Donald W. Zacharias
Dewey R. Sanderson, Jr. Rowan H. Taylor
Phil K. Livingston John H. Baker, III
Robert Buck Sanderson
24
<PAGE>
Performance Graph
The following graph presents a comparison of the five year cumulative
total stockholder return1 among the Company, the NASDAQ Composite Index, and a
self- constructed peer group index comprised of Cagles, Inc., Golden Poultry
Co., Hudson Foods, Inc., Pilgrim's Pride, Inc. and WLR Foods, Inc. (the "Peer
Group Index").
The Company selected the Peer Group Index because the return reflected in the
Peer Group Index presents stockholders with a comparison of total stockholder
return with companies of similar size, product and market capitalization.
YEARS2
1992 1993 1994 1995 1996 1997
Sanderson Farms, Inc. 100 117 151 125 160 159
NASDAQ Composite Index 100 129 130 174 206 271
Peer Group 100 133 177 155 169 203
- --------
1 Assumes $100 invested on November 1, 1992 total return assumes
reinvestment of dividends.
2 Fiscal year ends October 31.
25
<PAGE>
BY-LAW AMENDMENT
Background and Proposed By-Law Amendment
Section 1 of Article IV of the Company's By-Laws currently provides,
among other things, that the Company's Board of Directors shall consist of nine
members. The Board of Directors has unanimously adopted an amendment to Article
IV, Section 1 to increase the number of Directors from nine to 12. No change was
made in the requirement of Article IV, Section 1 that at least two of the
Directors must be independent. The proposed amendment would increase the number
of Directors by more than 30%, for which reason approval by the shareholders is
required by the Mississippi Business Corporation Act (the "Mississippi Act").
The required vote for approval is a majority of the votes cast thereon at the
annual meeting.
If the By-Law amendment is approved by the shareholders, the total number
of Directors will be increased by three, one of whom will be added to each of
the three classes of directors, Class A, Class B, and Class C. The By-Laws of
the Company, as permitted by the Mississippi Act, permit the Board of Directors
to fill a vacancy on the Board that is created by an increase in the number of
Directors. Subject to shareholder approval of proposed Article IV, Section 1 of
the Company's By-Laws, and pursuant to the Mississippi Act, at the Board meeting
following the shareholder Annual Meeting, the Board will appoint Lampkin Butts
to serve as a Class A Director until the 1999 annual meeting of stockholders or
until his successor is elected and has qualified and Mike Cockrell to serve as a
Class B Director until the 2000 annual meeting of stockholders or until his
successor
26
<PAGE>
is elected and has qualified. At the time of the mailing of this Proxy
Statement, the Board had not yet selected a candidate to serve as a Class C
Director. Because shareholder approval of proposed Article IV, Section 1 of the
Company's By-Laws will have the effect of confirming the Board's election of
Messrs. Butts and Cockrell as Directors, the following information is presented
concerning them. Such information is required to be included for any nominee for
Director of the Company. These persons were not presented as nominees for
election as directors at the Annual Meeting because there will be no vacancies
in the Board unless the shareholders approve the by-law amendment at the Annual
Meeting.
Mr. Cockrell, age 40, has served as Treasurer and Chief Financial Officer
of the Company since November 1, 1993. From July 1993 to November 1, 1993, Mr.
Cockrell served as an assistant to the Chief Financial Officer. He is a member
of the Executive Committee of the Company, which is the Company's senior
management committee. Prior to his employment by the Company, Mr. Cockrell was
for more than five years a shareholder in the law firm of Wise Carter Child &
Caraway, Professional Association in Jackson, Mississippi.
Mr. Butts, age 46, has been employed by the Company as Director of Sales
since 1995 and as Vice President-Sales since November 1, 1996. Prior to serving
as Director of Sales, Mr. Butts was employed by the Company as Director of
Processing. Mr. Butts is a member of the Executive Committee of the Company.
For information concerning the beneficial ownership of shares of the
Company by Messrs. Butts and Cockrell, see the table that appears under the
heading "Beneficial Ownership".
27
<PAGE>
A copy of proposed Article IV, Section 1 of the Company's By-Laws is
annexed to this Proxy Statement as Appendix A.
Board of Directors' Recommendation and Reasons
FOR REASONS SET FORTH BELOW, THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO APPROVE ARTICLE IV, SECTION 1 OF THE
COMPANY'S BY-LAWS, AS AMENDED. PROXIES IN THE ENCLOSED FORM WILL BE VOTED "FOR"
THE PROPOSAL UNLESS MARKED BY THE SHAREHOLDER TO THE CONTRARY.
The foregoing recommendation of the Board of Directors is based on its
belief that the addition of three directors is in the best interest of the
Company in augmenting effective corporate governance.
INDEPENDENT AUDITORS
Ernst & Young LLP, Independent Auditors, Jackson, Mississippi, were the
independent auditors for the Company during the fiscal year ended October 31,
1997. A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting. The representative will have the opportunity to make a statement
at the meeting if he desires to do so, and will be available to respond to any
appropriate questions.
The Board of Directors of the Company has selected the firm of Ernst &
Young LLP as the Company's independent auditors for the fiscal year ending
October 31,
28
<PAGE>
1998. Stockholder approval and ratification of this selection is not required by
law or by the By-Laws of the Company. Nevertheless, the Board has chosen to
submit it to the stockholders for their approval and ratification. Of the shares
represented and entitled to vote at the Annual Meeting (whether in person or by
proxy), more votes must be cast in favor of than votes cast against the proposal
to ratify and approve the selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending October 31, 1998, in order for
this proposal to be adopted. The Proxyholders named in the accompanying proxy
card will vote FOR the foregoing proposal unless otherwise directed therein.
Abstentions will not be counted either as a vote FOR or as a vote AGAINST the
proposal to ratify and approve the selection of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending October 31, 1998.
Broker non-votes will be treated as not present for purposes of calculating the
vote with respect to the foregoing proposal, and will not be counted either as a
vote FOR or AGAINST or as an ABSTENTION with respect thereto. If more votes are
cast AGAINST this proposal than FOR, the Board of Directors will take such
decision into consideration in selecting independent auditors for the Company.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of
no matters likely to be brought before the Annual Meeting other than those set
forth in the Notice of the Meeting. If other matters properly come before the
Meeting, each Proxy will be voted in accordance with the discretion of the
Proxyholders named therein.
29
<PAGE>
STOCKHOLDER PROPOSALS
Procedure
The Company's By-laws provide that stockholders may nominate individuals
for election as directors from the floor at any annual or special meeting of
stockholders called for the election of directors only if timely written notice
of such nomination has been given to the Secretary of the Company. To be timely,
such notice must be received at the principal office of the Company no later
than the close of business on the 15th day following the day on which notice of
the date of the meeting is given or made to stockholders in accordance with the
Bylaws. The By-laws specify what such a notice of such nomination must include.
In addition, the By-laws set forth the procedure that must be followed by
stockholders to properly bring a matter before a stockholders' meeting. If a
stockholder wishes to bring a matter before the meeting that has not been
specified in the notice of the meeting, the stockholder must deliver written
notice of said stockholder's intent to bring the matter before the meeting of
stockholders so that the notice is received by the Secretary of the Company no
later than the close of business on the 15th day following the date on which
notice of the day of the meeting is given or made to stockholders in accordance
with the By-laws. The By-laws also specify what such a notice must include.
1999 Annual Meeting
A stockholder who intends to present a proposal, which relates to a
proper subject for stockholder action, at the 1999 Annual Meeting of
Stockholders and who wishes such proposal to be considered for inclusion in the
Company's proxy materials for such meeting must cause such proposal to be
received, in proper
30
<PAGE>
form, at the Company's principal executive offices no later than September 22,
1998. Any such proposals, as well as any questions relating thereto, should be
directed to the Company to the attention of its President.
METHODS AND COST OF SOLICITING PROXIES
The Proxy card enclosed with this Proxy Statement is solicited by and on
behalf of the Board of Directors of the Company. In addition to solicitation of
stockholders of record by mail, telephone or personal contact, arrangements will
be made with brokerage houses to furnish proxy materials to their principals,
and the Company will reimburse them for their mailing expenses. Custodians and
fiduciaries will be supplied with proxy materials to forward to beneficial
owners of common stock. Whether or not you expect to be present at the Annual
Meeting, please sign, date and return the enclosed Proxy card promptly. No
postage is necessary if mailed in the United States. The cost of solicitation,
including the preparation, printing and mailing, is being paid by the Company.
BY ORDER OF THE BOARD OF DIRECTORS:
/s/James A. Grimes, Secretary
Dated: January 27, 1998
31
<PAGE>
APPENDIX "A"
SANDERSON FARMS, INC.
PROPOSED AMENDMENT TO THE BY-LAWS OF THE COMPANY
ARTICLE IV
Section 1: All corporate powers shall be exercised by or under the
authority of, and the business and affairs of the corporation managed under the
direction of, the Board of Directors, subject to any limitation set forth in the
Articles of Incorporation, which shall consist of twelve (12) members, at least
two (2) of whom shall be independent directors.
32
<PAGE>
APPENDIX "B"
SANDERSON FARMS, INC.
The undersigned hereby appoints D. Michael Cockrell and James A. Grimes
and each of them, as proxies for the undersigned, with full power of
substitution, to vote all of the undersigned's shares of common stock, $1.00 per
share par value, of Sanderson Farms, Inc. at the Annual Meeting on February 19,
1998 (and any adjournments thereof), as instructed herein with respect to the
matters herein set forth (and, to the extent not so instructed, as set forth in
the related Proxy Statement), and according to their discretion upon all other
matters which may properly come before such Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED UPON THE
MATTERS SET FORTH ON THE REVERSE. IF NO DIRECTION IS INDICATED, THIS PROXY WILL
BE VOTED "FOR" PROPOSALS 1 and 2. THIS PROXY CONFERS DISCRETIONARY VOTING
AUTHORITY AS TO ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE ANNUAL
MEETING. SEE ACCOMPANYING PROXY STATEMENT.
Dated: , 1998
Signature(s)
Executors, Administrators, Trustees, etc. should
give full title. This proxy should be signed
as name appears on certificate(s).
THIS PROXY IS SOLICITED BY THE BOARD OF
DIRECTORS OF SANDERSON FARMS, INC.
(SEE BALLOT ON REVERSE)
33
<PAGE>
BALLOT
MANAGEMENT RECOMMENDS A VOTE
"FOR" THE FOLLOWING PROPOSALS
1. To elect three Class C Directors to serve until the 2001 annual meeting:
---- ----
/ / FOR all nominees / / WITHHOLD AUTHORITY
listed below (except (to vote for all
as indicated to the nominees listed below)
contrary below)
William R. Sanderson Robert Buck Sanderson and Donald W. Zacharias
INSTRUCTIONS: To withhold authority to vote for any individual
nominee, write the nominee's name here:
----------------------- ------------------------
2. To approve proposed Article IV, Section 1 of the Company's By-Laws, as
amended, which section increases the number of directors by three.
---- ---- ----
/ / FOR / / AGAINST / / ABSTAIN
---- ---- ----
3. To consider and act upon a proposal to ratify and approve the selection
of Ernst & Young LLP as the Company's independent auditors for the fiscal
year ending October 31, 1998:
---- ---- ----
/ / FOR / / AGAINST / / ABSTAIN
34
<PAGE>
SANDERSON FARMS, INC.
BALLOT
1. To elect three Class C Directors to serve until the 2001 annual meeting:
---- ----
/ / FOR all nominees / / WITHHOLD AUTHORITY
listed below (except (to vote for all
as indicated to the nominees listed below)
contrary below)
William R. Sanderson Robert Buck Sanderson and Donald W. Zacharias
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
write the nominee's name here:
2. To approve proposed Article IV, Section 1 of the Company's By-Laws, as
amended, which Section increases the number of directors by three.
---- ---- ----
/ / FOR / / AGAINST / / ABSTAIN
---- ---- ----
3. To consider and act upon a proposal to ratify and approve the selection
of Ernst & Young LLP as the Company's independent auditors for the fiscal
year ending October 31, 1998
---- ---- ----
/ / FOR / / AGAINST / / ABSTAIN
---- ---- ----
Dated:_____________________, 1998 ______________________
Participant
----------------------
(Print Name)
PLEASE DATE, SIGN AND RETURN THIS BALLOT IN THE ENCLOSED ADDRESSED AND POSTAGE
PREPAID ENVELOPE TO THE ADMINISTRATIVE COMMITTEE OF THE ESOP NO LATER THAN
FEBRUARY 15, 1998, THROUGH COMPANY MAIL OR BY UNITED STATES MAIL.
35
<PAGE>
