10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended October 31, 2005

o Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from                      to                     

Commission file number: 1-14977

SANDERSON FARMS, INC.

(Exact name of registrant as specified in its charter)

Mississippi
(State or other jurisdiction of
incorporation or organization)
225 North 13th Avenue
Laurel, Mississippi
(Address of principal executive offices) 64-0615843
(IRS Employer
Identification No.)
39440
(Zip Code)

Registrant’s telephone number, including area code: (601) 649-4030
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $1.00 per share par value

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes þ No

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes þ No

     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.

þ Yes o No

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o.

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

þ Yes o No

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes þ No

     Aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant computed by reference to the closing sales price of the common equity in the NASDAQ National Market System on the last business day of the Registrant’s most recently completed second fiscal quarter: $602,841,455.52 .

     Number of shares outstanding of the Registrant’s common stock as of December 28, 2005: 20,063,070 shares of common stock, $1.00 per share par value.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant’s definitive proxy statement filed or to be filed in connection with its 2006 Annual Meeting of Stockholders are incorporated by reference into Part III.

TABLE OF CONTENTS

PART I
	Item 1. Business	2
	Item 1A. Risk Factors	12
	Item 1B. Unresolved Staff Comments	16
	Item 2. Properties	16
	Item 3. Legal Proceedings	17
	Item 4. Submission of Matters to a Vote of Security Holders	19
	Item 4A. Executive Officers of the Registrant	19
PART II		19
	Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters	19
	Item 6. Selected Financial Data	21
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 7A. Quantitative and Qualitative Disclosure About Market Risk	29
	Item 8. Financial Statements and Supplementary Data	31
	Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	47
	Item 9A. Controls and Procedures	48
	Item 9B. Other Information	49
PART III		49
	Item 10. Directors and Executive Officers of the Registrant	49
	Item 11. Executive Compensation	50
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	50
	Item 13. Certain Relationships and Related Transactions	51
	Item 14. Principal Accountant Fees and Services	51
PART IV		51
	Item 15. Exhibits and Financial Statement Schedules	51
SIGNATURES		57
EXHIBITS		59
EX-23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EX-31.1 SARBANES 302 CERTIFICATION OF THE CEO
EX-31.2 SARBANES 302 CERTIFICATION OF THE CFO
EX-32.1 SARBANES 906 CERTIFICATION OF THE CEO
EX-32.2 SARBANES 906 CERTIFICATION OF THE CFO
Ex-10.5 Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates
Ex-10.6 Amendment One dated October 22, 2002 to the Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates
Ex-10.7 Amendment Two dated December 2, 2003 to the Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates
Ex-10.8 Amendment Three dated February 11, 2004 to the Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates
Ex-10.9 Amendment Four dated January 1, 2003 to the Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates
Ex-10.10 Amendment Five dated March 28, 2005 to the Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates
Ex-23 Consent of Independent Registered Public Accounting Firm
Ex-31.1 Section 302 Certification of the CEO
Ex-31.2 Section 302 Certification of the CFO
Ex-32.1 Section 906 Certification of the CEO
Ex-32.2 Section 906 Certification of the CFO

INTRODUCTORY NOTE

     Definitions. This Annual Report on Form 10-K is filed by Sanderson Farms, Inc., a Mississippi corporation. Except where the context indicates otherwise, the terms “Registrant,” “Company,” “Sanderson Farms,” “we,” “us,” or “our” refer to Sanderson Farms, Inc. and its subsidiaries and predecessor organizations. The use of these terms to refer to Sanderson Farms, Inc. and its subsidiaries collectively does not suggest that Sanderson Farms has abandoned their separate identities or the legal protections given to them as separate legal entities. “Fiscal year” means the fiscal year ended October 31, 2005, which is the year for which this Annual Report is filed.

     Presentation and Dates of Information. Except for Item 4A herein, the Item numbers and letters appearing in this Annual Report correspond with those used in Securities and Exchange Commission Form 10-K (and, to the extent that it is incorporated into Form 10-K, the letters used in the Commission’s Regulation S-K) as effective on the date hereof, which specifies the information required to be included in Annual Reports to the Commission. Item 4A (“Executive Officers of the Registrant”) has been included by the Registrant in accordance with General Instruction G(3) of Form 10-K and Instruction 3 of Item 401(b) of Regulation S-K. The information contained in this Annual Report is, unless indicated to be given as of a specified date or for the specified period, given as of the date of this Report, which is December 29, 2005.

PART I

Item 1. Business

(a) GENERAL DEVELOPMENT OF THE REGISTRANT’S BUSINESS

     The Registrant was incorporated in Mississippi in 1955, and is a fully-integrated poultry processing company engaged in the production, processing, marketing and distribution of fresh and frozen chicken products. In addition, the Registrant is engaged in the processing, marketing and distribution of processed and prepared food items through its wholly-owned subsidiary, Sanderson Farms, Inc. (Foods Division).

     The Registrant sells ice pack, chill pack and frozen chicken, in whole, cut-up and boneless form, primarily under the Sanderson Farms^® brand name to retailers, distributors, and casual dining operators principally in the southeastern, southwestern and western United States. During its fiscal year ended October 31, 2005 the Registrant processed 277.4 million chickens, or approximately 1.6 billion dressed pounds. According to 2005 industry statistics, the Registrant was the 5th largest processor of dressed chickens in the United States based on estimated average weekly processing.

     The Registrant’s chicken operations presently encompass six hatcheries, five feed mills and seven processing plants. The Registrant has contracts with operators of approximately 464 grow-out farms that provide it with sufficient housing capacity for its current operations. The Registrant also has contracts with operators of 155 breeder farms.

     Through its Foods Division subsidiary, the Registrant sells over 100 processed and prepared food items nationally and regionally, primarily to distributors, national food service accounts, retailers and club stores. These food items include further processed chicken products and frozen entrees, such as chicken and dumplings, lasagna, seafood gumbo, shrimp creole and other specialty products.

     Since the Registrant completed the initial public offering of its common stock in May 1987, the Registrant has significantly expanded its operations to increase production capacity, product lines and marketing flexibility. Through 1995, this expansion included the expansion of the Registrant’s Hammond, Louisiana processing facility, the construction of new waste water facilities at the Hammond, Louisiana and Collins and Hazlehurst, Mississippi processing facilities, the addition of second shifts at the Hammond, Louisiana, Laurel, Hazlehurst, and Collins, Mississippi processing facilities, expansion of freezer and production capacity at its prepared foods facility in Jackson, Mississippi, the expansion of freezer capacity at its Laurel, Mississippi, Hammond, Louisiana and Collins,

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Mississippi processing facilities, the addition of deboning capabilities at all of the Registrant’s poultry processing facilities, and the construction and start-up of its Pike County (McComb), Mississippi production and processing facilities, including a hatchery, a feed mill, a processing plant, a waste water treatment facility and a water treatment facility. In addition, since 1987, the Registrant completed the expansion and renovation of the hatchery at its Hazlehurst, Mississippi production facilities.

     During 1997, the Registrant completed the construction and start-up of its Brazos County (Bryan), Texas production and processing facilities, including a hatchery, a feed mill located in Robertson County, Texas, a processing plant, a waste water treatment facility and a water treatment facility.

     In the fourth quarter of fiscal 2005, the Registrant began initial operations at its new poultry processing complex in southern Georgia. The complex consists of a feed mill, hatchery, processing plant and wastewater treatment facility. The Company anticipates this plant will reach its full capacity of 1.2 million head of chicken per week by the fourth fiscal quarter of 2006.

     The Registrant currently has additional processing capacity available to it through the expansion of the 2nd shift of the second line at its Collins, Mississippi processing facility, which is currently at 88% capacity. It announced its plans to expand this plant and reach full capacity at the plant by the summer of 2006.

     Since 1997, the Company has also changed its marketing strategy to move away from the small bird markets serving primarily the fast food markets and into the retail and big bird deboning markets serving the retail and food service industries. This market shift has resulted in larger average bird weights of the chickens processed by the Company, and has substantially increased the number of pounds processed by the Company. In addition, the Registrant continually evaluates internal and external expansion opportunities to continue its growth in poultry and/or related food products.

     Capital expenditures for fiscal 2005 were funded by working capital. Effective November 17, 2005, the Registrant entered into a new revolving credit agreement that terminates on July 31, 2010. The Registrant anticipates that capital expenditures for fiscal 2006 will be funded by internally generated working capital and, if needed, borrowings under the revolving credit agreement.

(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

     Not applicable.

(c) NARRATIVE DESCRIPTION OF REGISTRANT’S BUSINESS

General

     The Registrant is engaged in the production, processing, marketing and distribution of fresh and frozen chicken and the preparation, processing, marketing and distribution of processed and prepared food items.

     The Registrant sells chill pack, ice pack and frozen chicken, both whole and cut-up, primarily under the Sanderson Farms^® brand name to retailers, distributors and casual dining operators principally in the southeastern, southwestern and western United States. During its fiscal year ended October 31, 2005, the Registrant processed approximately 277.4 million chickens, or approximately 1.6 billion dressed pounds. In addition, the Registrant purchased and further processed 4.5 million pounds of poultry products during fiscal 2005. According to 2005 industry statistics, the Registrant was the 5th largest processor of dressed chicken in the United States based on estimated average weekly processing.

     The Registrant conducts its chicken operations through Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division), both of which are wholly-owned subsidiaries of Sanderson Farms, Inc.

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The production subsidiary, Sanderson Farms, Inc. (Production Division), which has facilities in Laurel, Collins, Hazlehurst and Pike County, Mississippi, Bryan, Texas and Adel, Georgia, is engaged in the production of chickens to the broiler stage. Sanderson Farms, Inc. (Processing Division), which has facilities in Laurel, Collins, Hazlehurst and Pike County, Mississippi, Hammond, Louisiana, Bryan, Texas and Moultrie, Georgia, is engaged in the processing, sale and distribution of chickens.

     The Registrant conducts its processed and prepared foods business through its wholly-owned subsidiary, Sanderson Farms, Inc. (Foods Division), which has a facility in Jackson, Mississippi. The Foods Division is engaged in the processing, marketing and distribution of over 100 processed and prepared food items, which it sells nationally and regionally, principally to distributors, national food service accounts, retailers and club stores.

Products

     The Registrant has the ability to produce a wide range of processed chicken products and processed and prepared food items which allows it to take advantage of marketing opportunities as they arise.

     Processed chicken is first saleable as an ice packed whole chicken. The Registrant adds value to its ice packed whole chickens by removing the giblets, weighing, packaging and labeling the product to specific customer requirements and cutting the product based on customer specifications. The additional processing steps of giblet removal, close tolerance weighing and cutting increase the value of the product to the customer over whole ice packed chickens by reducing customer handling and cutting labor and capital costs, reducing the shrinkage associated with cutting, and ensuring consistently sized portions.

     The Registrant adds additional value to the processed chicken by deep chilling and packaging whole chickens in bags or combinations of fresh chicken parts in various sized individual trays under the Registrant’s brand name, which then may be weighed and pre-priced, based on each customer’s needs. This chill pack process increases the value of the product by extending shelf life, reducing customer weighing and packaging labor, and providing the customer with a wide variety of products with uniform, well designed packaging, all of which enhance the customer’s ability to merchandise chicken products.

     To satisfy some customers’ merchandising needs, the Registrant freezes the chicken product, which adds value by meeting the customers’ handling, storage, distribution and marketing needs and by permitting shipment of product overseas where transportation time may be as long as 25 days.

     Value added products usually generate higher sale prices per pound, exhibit less finished price volatility and generally result in higher and more consistent profit margins over the long-term than non-value added product forms. Selling fresh chickens as a prepackaged brand name product has been a significant step in the development of the value added, higher margin consumer business.

     The following table sets forth, for the periods indicated, the contribution, as a percentage of sales of chicken products, of value added and non-value added chicken products.

	Fiscal Year Ended October 31,
	2001			2002			2003			2004			2005
Value added		99.5	%		99.7	%		99.5	%		99.6	%		99.5	%
Non-value added		.5			.3			.5			.4			.5
Total Registrant chicken sales		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

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     The following table sets forth, for the periods indicated, the contribution, as a percentage of net sales dollars, of each of the Registrant’s major product lines.

	Fiscal Year Ended October 31,
	2001			2002			2003			2004			2005
Registrant processed chicken:
Value added:
Chill pack		40.3	%		40.6	%		34.4	%		32.5	%		33.6	%
Fresh bulk pack		39.6			38.9			42.5			47.5			44.4
Frozen		9.2			9.2			10.3			10.0			12.4
Subtotal		89.1			88.7			87.2			90.0			90.4
Non-value added:
Ice pack		.2			.2			.3			.3			.3
Frozen		.2			.1			.1			.1			.1
Subtotal		.4			.3			.4			.4			.4
Total Company processed chicken		89.5			89.0			87.6			90.4			90.8
Processed and prepared foods		10.5			11.0			12.4			9.6			9.2
Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Market Segments and Pricing

     The three largest market segments in the chicken industry are big bird deboning, chill pack and small birds.

     The following table sets forth, for each of the Company’s poultry processing plants, the general market segment in which the plant participates, the weekly capacity of each plant expressed in number of head processed, and the average industry size of birds processed in the relevant market segment.

Plant Location	Market Segment	Capacity Per Week		Industry Bird Size
Laurel, Mississippi	Big Bird Deboning		625,000		7.25
Hazlehurst, Mississippi	Big Bird Deboning		625,000		7.25
Hammond, Louisiana	Big Bird Deboning		625,000		7.25
McComb, Mississippi	Chill Pack Retail		1,250,000		5.60
Bryan, Texas	Chill Pack Retail		1,250,000		5.60
Collins, Mississippi	Chill Pack Retail (Day Shift)		625,000		5.60
Collins, Mississippi	Big Bird Deboning (Night Shift)		475,000		7.25
Moultrie, Georgia	Chill Pack Retail		1,250,000		5.60

     Those plants that target the big bird deboning market grow a relatively large bird. The dark meat from these birds is sold primarily as frozen leg quarters in the export market or as fresh whole legs to further processors. This dark meat is sold primarily at spot commodity prices, which prices exhibit fluctuations typical of commodity markets. The white meat produced by these plants is generally sold as fresh deboned breast meat and whole or cut wings, and is likewise sold at spot commodity market prices for wings and boneless breast meat. The Company currently processes 2.35 million head per week in its big bird deboning plants, and its results are materially impacted by fluctuations in the commodity market prices for leg quarters, boneless breast meat and wings.

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     The Urner Barry spot market price for leg quarters, boneless breast meat and whole wings for the past five calendar years is set forth below:

     Those plants that target the chill pack retail market grow a medium sized bird and cut and package the product in various sized individual trays to customers’ specifications. The trays are weighed and pre-priced primarily for customers to resell through retail outlets. While the Company sells some of its chill pack product under store brand names, most of its chill pack production is sold under the Company’s Sanderson Farms^® brand name. While the Company has long term contracts (up to four years) with most of its chill pack customers, the pricing of this product is based on a formula that uses the Georgia Dock whole bird price as its base. The Georgia Dock whole bird price is issued each week by the Georgia Department of Agriculture and is based on its survey of prices during the preceding week. The Company currently has 3.75 million head per week dedicated to the chill pack market, and its results are materially impacted by fluctuations in the Georgia Dock price.

     The Georgia Dock price for whole birds as issued by the Georgia Department of Agriculture for the last five calendar years is set forth below:

     Those companies with plants dedicated to the small bird market grow and process a relatively small chicken and market the finished product primarily to fast food and food service companies at negotiated flat prices, cost plus formulas or spot market prices. Based on bench marking services used by the industry, this market segment has been

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the least profitable of the three primary market segments over the last ten years. The Company has no product dedicated to the small bird market.

Sales and Marketing

     The Registrant’s chicken products are sold primarily to retailers (including national and regional supermarket chains and local supermarkets) and distributors located principally in the southeastern, southwestern and western United States. The Registrant also sells its chicken products to governmental agencies, casual dining operators and to customers who resell the products outside of the continental United States. This wide range of customers, together with the Registrant’s broad product mix, provides the Registrant with flexibility in responding to changing market conditions in its effort to maximize profits. This flexibility also assists the Registrant in its efforts to reduce its exposure to market volatility.

     Sales and distribution of the Registrant’s chicken products are conducted primarily by sales personnel at the Registrant’s general corporate offices in Laurel, Mississippi and by customer service representatives at each of its seven processing complexes and through independent food brokers. Each complex has individual on-site distribution centers and uses the Registrant’s truck fleet, as well as contract carriers, for distribution of its products.

     Generally, the Registrant prices much of its chicken products based upon weekly market prices reported by the Georgia Department of Agriculture and by private firms. Consistent with the industry, the Registrant’s profitability is impacted by such market prices, which may fluctuate substantially and exhibit cyclical characteristics. The Registrant will adjust base prices depending upon value added, volume, product mix and other factors. While base prices may change weekly, the Registrant’s adjustment is generally negotiated from time to time with the Registrant’s customers. The Registrant’s sales are generally made on an as-ordered basis, and the Registrant maintains few long-term sales contracts with its non-chill pack customers.

     The Registrant uses television, radio and newspaper advertising, coupon promotion, point of purchase material and other marketing techniques to develop consumer awareness of and brand recognition for its Sanderson Farms^® products. The Registrant has achieved a high level of public awareness and acceptance of its products through television advertising. Brand awareness is an important element of the Registrant’s marketing philosophy, and it intends to continue brand name merchandising of its products. During calendar 2004, the Company launched an advertising campaign designed to distinguish the Company’s fresh chicken products from competitors’ products. The campaign noted that the Company’s product is a natural product free from salt, water and other additives that some competitors inject to their fresh chicken. The campaign was well received, and the Company plans to continue the campaign into 2006.

     The Registrant’s processed and prepared food items are sold nationally and regionally, primarily to distributors and national food service accounts. Sales of such products are handled by independent food brokers located throughout the United States, primarily in the southeast and southwest United States, and by sales personnel of the Registrant. Processed and prepared food items are distributed from the Registrant’s plant in Jackson, Mississippi, through arrangements with contract carriers.

Production and Facilities

     General. The Registrant is a vertically-integrated producer of fresh and frozen chicken products, controlling the production of hatching eggs, hatching, feed manufacturing, growing, processing and packaging of its product lines.

     Breeding and Hatching. The Registrant maintains its own breeder flocks for the production of hatching eggs. The Registrant’s breeder flocks are acquired as one-day old chicks (known as pullets or cockerels) from primary breeding companies that specialize in the production of genetically designed breeder stock. As of October 31, 2005, the Registrant maintained contracts with 38 pullet farm operators for the grow-out of pullets (growing the pullet to the point at which it is capable of egg production, which takes approximately six months). Thereafter, the mature breeder flocks are transported by Registrant’s vehicles to breeder farms that are maintained, as of October 31, 2005,

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by 117 independent contractors under the Registrant’s supervision. Eggs produced by independent contract breeders are transported to Registrant’s hatcheries in Registrant’s vehicles.

     The Registrant owns and operates six hatcheries located in Mississippi, Texas and Georgia where eggs are incubated and hatched in a process requiring 21 days. Once hatched, the day-old chicks are vaccinated against common poultry diseases and are transported by Registrant’s vehicles to independent contract grow-out farms. As of October 31, 2005, the Registrant’s hatcheries were capable of producing an aggregate of approximately 6.4 million chicks per week.

     Grow-out. The Registrant places its chicks on 464 grow-out farms, as of October 31, 2005, located in Mississippi, Louisiana, Texas and Georgia where broilers are grown to an age of approximately seven to nine weeks. The farms provide the Registrant with sufficient housing capacity for its operations, and are typically family-owned farms operated under contract with the Registrant. The farm owners provide facilities, utilities and labor; the Registrant supplies the day-old chicks, feed and veterinary and technical services. The farm owner is compensated pursuant to an incentive formula designed to promote production cost efficiency.

     Historically, the Registrant has been able to accommodate expansion in grow-out facilities through additional contract arrangements with independent growers.

     Feed Mills. An important factor in the grow-out of chickens is the rate at which chickens convert feed into body weight. The Registrant purchases on the open market the primary feed ingredients, including corn and soybean meal, which historically have been the largest cost components of the Registrant’s total feed costs. The quality and composition of the feed are critical to the conversion rate, and accordingly, the Registrant formulates and produces its own feed. As of October 31, 2005, the Registrant operated five feed mills, three of which are located in Mississippi, one in Texas and one in Georgia. The Registrant’s annual feed requirements for fiscal 2005 were (approximately) 2,063,000 tons, and it has the capacity to produce approximately 2,558,000 tons of finished feed annually under current configurations.

     Feed grains are commodities subject to volatile price changes caused by weather, size of harvest, transportation and storage costs and the agricultural policies of the United States and foreign governments. On October 31, 2005, the Registrant had approximately 1,330,000 bushels of corn storage capacity at its feed mills, which was sufficient to store all of its weekly requirements for corn. Generally, the Registrant purchases its corn and other feed supplies at current prices from suppliers and, to a limited extent, direct from farmers. Feed grains are available from an adequate number of sources. Although the Registrant has not experienced, and does not anticipate problems in securing adequate supplies of feed grains, price fluctuations of feed grains can be expected to have a direct and material effect upon the Registrant’s profitability. Although the Registrant attempts to manage the risk from volatile price changes in grain markets by sometimes purchasing grain at current prices for future delivery, it cannot eliminate the potentially adverse effect of grain price increases.

     Processing. Once the chicks reach processing weight, they are transported to the Registrant’s processing plants. These plants use modern, highly automated equipment to process and package the chickens. The Registrant’s Pike County, Mississippi processing plant, which currently operates two processing lines on a double shift basis, is currently processing approximately 1,250,000 chickens per week. The Registrant’s Collins, Mississippi processing plant, which is currently operating one of its two lines on a double shift basis and one line on a partial double shift basis, is currently processing approximately 1,100,000 chickens per week. The Registrant’s Brazos County, Texas processing plant, which is currently operating two lines on a double shift basis, is currently processing approximately 1,250,000 chickens per week. The Registrant’s Laurel and Hazlehurst, Mississippi and Hammond, Louisiana processing plants, which currently operate on a double shift basis, are collectively processing approximately 1,875,000 chickens per week. The Registrant’s Moultrie, Georgia processing plant, which began initial operation during the fourth quarter of fiscal 2005, currently is operating one line single shift. The Moultrie, Georgia plant is structured similar to the McComb, Mississippi and Brazos, Texas processing plants and will have the capacity by the fourth fiscal quarter of 2006 to process two lines, on a double shift basis, or 1,250,000 million chicken per week. The Registrant also has the capabilities to produce deboned product at seven processing facilities.

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At October 31, 2005, these deboning facilities were operating on a double shifted basis resulting in a combined capacity to process approximately 15.2 million pounds of product per week.

     Sanderson Farms, Inc. (Foods Division). The facilities of Sanderson Farms, Inc. (Foods Division) are located in Jackson, Mississippi in a plant with approximately 75,000 square feet of refrigerated manufacturing and storage space. The plant uses highly automated equipment to prepare, process and freeze food items. The Registrant could increase significantly its production of processed and prepared food items without incurring significant capital expenditures or delays.

     Executive Offices; Other Facilities. The Registrant’s corporate offices are located in Laurel, Mississippi. As of October 31, 2005, the Registrant operated 7 automotive maintenance shops which service approximately 613 Registrant over-the-road and farm vehicles. In addition, the Registrant has one child care facility located near its Collins, Mississippi processing plant, currently serving over 200 children.

     During fiscal 2005, the Company began construction of a new 90,000 square feet corporate office building in Laurel, Mississippi. The office building will house the Company’s corporate offices, meeting facilities and computer equipment and will constitute the corporate headquarters. The Company expects to spend approximately $9.2 million on the new headquarters during fiscal 2006.

Quality Control

     The Registrant believes that quality control is important to its business and conducts quality control activities throughout all aspects of its operations. The Registrant believes these activities are beneficial to efficient production and in assuring its customers wholesome, high quality products.

     From the corporate offices, the Director of Technical Services supervises the operation of a modern, well-equipped laboratory which, among other things, monitors sanitation at the hatcheries, quality and purity of the Registrant’s feed ingredients and feed, the health of the Registrant’s breeder flocks and broilers, and conducts microbiological tests of live chickens, facilities and finished products. The Registrant conducts on-site quality control activities at each of the seven processing plants and the prepared food plant.

Regulation

     The Registrant’s facilities and operations are subject to regulation by various federal and state agencies, including, but not limited to, the Federal Food and Drug Administration (“FDA”), the United States Department of Agriculture (“USDA”), the Environmental Protection Agency, the Occupational Safety and Health Administration and corresponding state agencies. The Registrant’s chicken processing plants are subject to continuous on-site inspection by the USDA. The Sanderson Farms, Inc. (Foods Division) processing plant operates under the USDA’s Total Quality Control Program which is a strict self-inspection plan written in cooperation with and monitored by the USDA. The FDA inspects the production of the Registrant’s feed mills.

     Compliance with existing regulations has not had a material adverse effect upon the Registrant’s earnings or competitive position in the past and is not anticipated to have a materially adverse effect in the future. Management believes that the Registrant is in substantial compliance with existing laws and regulations relating to the operation of its facilities and does not know of any major capital expenditures necessary to comply with such statutes and regulations.

     The Registrant takes extensive precautions to ensure that its flocks are healthy and that its processing plants and other facilities operate in a healthy and environmentally sound manner. Events beyond the control of the Registrant, however, such as an outbreak of disease in its flocks or the adoption by governmental agencies of more stringent regulations, could materially and adversely affect its operations.

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Competition

     The Registrant is subject to significant competition from regional and national firms in all markets in which it competes. Some of the Registrant’s competitors have greater financial and marketing resources than the Registrant.

     The primary methods of competition are price, product quality, number of products offered, brand awareness and customer service. The Registrant has emphasized product quality and brand awareness through its advertising strategy. See “Business — Sales and Marketing”. Although poultry is relatively inexpensive in comparison with other meats, the Registrant competes indirectly with the producers of other meats and fish, since changes in the relative prices of these foods may alter consumer buying patterns.

     No customer accounted for more than 10.0% of consolidated sales for the year ended October 31, 2005. One customer accounted for 12.5% and 11.7%, respectively, of consolidated sales for the years ended October 31, 2004 and October 31, 2003. The Company does not believe the loss of this or any customer would have a material adverse effect on the Company.

Sources of Supply

     During fiscal 2005, the Registrant purchased its pullets and its cockerels from two (2) major breeders. The Registrant has found the genetic cross of the breeds supplied by these companies to produce chickens most suitable to the Registrant’s purposes. The Registrant has no written contracts with these breeders for the supply of breeder stock. Other sources of breeder stock are available, and the Registrant continually evaluates these sources of supply.

     Should breeder stock from its present suppliers not be available for any reason, the Registrant believes that it could obtain adequate breeder stock from other suppliers.

     Other major raw materials used by the Registrant include feed grains, cooking ingredients and packaging materials. The Registrant purchases these materials from a number of vendors and believes that its sources of supply are adequate for its present needs. The Registrant does not anticipate any difficulty in obtaining these materials in the future.

Seasonality

     The demand for the Registrant’s chicken products generally is greatest during the spring and summer months and lowest during the winter months.

Trademarks

     The Registrant has registered with the United States Patent and Trademark Office the trademark Sanderson Farms^® which it uses in connection with the distribution of its prepared foods, frozen entree products and premium grade chill pack products. The Registrant considers the protection of this trademark to be important to its marketing efforts due to consumer awareness of and loyalty to the Sanderson Farms^® label. The Registrant also has registered with the United States Patent and Trademark Office eight other trademarks that are used in connection with the distribution of chicken and other products and for other competitive purposes.

     The Registrant, over the years, has developed important non-public proprietary information regarding product related matters. While the Registrant has internal safeguards and procedures to protect the confidentiality of such information, it does not generally seek patent protection for its technology.

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Employees and Labor Relations

     As of October 31, 2005, the Registrant had 8,645 employees, including 934 salaried and 7,711 hourly employees. A collective bargaining agreement with the United Food and Commercial Workers International Union covering 783 hourly employees who work at the Registrant’s processing plant in Hammond, Louisiana expires on December 1, 2007. The collective bargaining agreement has a grievance procedure and no strike-no lockout clauses that should assist in maintaining stable labor relations at the Hammond plant.

     A collective bargaining agreement with the Laborers’ International Union of North America, Professional Employees Local Union #693, AFL-CIO, covering 580 hourly employees who work at the Registrant’s processing plant in Hazlehurst, Mississippi was negotiated and signed by the union and the Registrant effective July 15, 1995. This agreement was renegotiated and signed on February 24, 2003, and had an expiration date of December 23, 2005. This collective bargaining agreement has a grievance procedure and no strike-no lockout clauses that should assist in maintaining stable labor relations at the Hazlehurst plant. Negotiations on a new contract are complete and the employees at the Hazlehurst, Mississippi plant have ratified the agreement. The new agreement has an expiration date of December 31, 2008.

     A collective bargaining agreement with the Laborers’ International Union of North America, Professional Employees Local Union #693, AFL-CIO, covering 1,193 hourly employees who work at the Registrant’s processing plant in Collins, Mississippi was negotiated and signed by the union and the Registrant effective September 9, 1995, and expired on December 30, 1999. The agreement was renegotiated and the agreement has a termination date of December 31, 2006. This collective bargaining agreement has a grievance procedure and no strike-no lockout clause that should assist in maintaining stable labor relations at the Collins plant.

     On June 9, 1999, the production, maintenance and clean-up employees at the Company’s Brazos County, Texas poultry processing facility voted to be represented by the United Food and Commercial Workers Union Local #408, AFL-CIO. A collective bargaining agreement was negotiated and signed on October 7, 1999. A contract was negotiated and signed on November 13, 2002, with an expiration date of December 31, 2005. The Company and the union have agreed in principal, to renew the agreement. This action was ratified by the employees at the plant on December 14, 2005, and the parties are in the process of documenting their understanding. This collective bargaining agreement has a grievance procedure and no strike-no lockout clause that should assist in maintaining stable labor relations at the Brazos County, Texas processing facility.

     On November 30, 2001, live haul drivers at the Company’s McComb, Mississippi production division voted to be represented by United Food and Commercial Workers’ Union Local #1529 AFL-CIO in collective bargaining. A collective bargaining agreement was reached and currently has an expiration date of December 31, 2006. The union demonstrated during 2004 by signed authorization cards that it had been chosen as the bargaining representative of the loader-operators, and at their request were included in the bargaining unit with the live-haul drivers.

     On September 13, 2001, production, maintenance and truck driver employees at the Company’s McComb, Mississippi Feed Mill facility voted to be represented in collective bargaining by United Food and Commercial Workers’ Union Local #1529 AFL-CIO. A collective bargaining agreement was negotiated and signed effective July 16, 2002, and had an expiration date of June 30, 2005. This agreement included a provision allowing re-opening of bargaining of certain financial matters on July 1, 2003 and July 1, 2004, and has a grievance procedure and no strike-no lockout clause that should assist in maintaining stable labor relations at this facility. By agreement dated July 20, 2003, the Company and the union agreed to amend the agreement to provide for an expiration date of December 31, 2004. Negotiations were completed on a new contract in February 2005, and the new agreement has an expiration date of December 31, 2007.

(d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

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     All of the Company’s operations are domiciled in the United States. All of the products sold to the Company’s customers for the Company’s fiscal years 2005, 2004 and 2003 were produced in the United States and all long-lived assets of the Company are domiciled in the United States.

     The Company exports certain of its products to foreign markets, primarily Mexico, Russia, China, Puerto Rico, and the Caribbean. These exports sales for fiscal years 2005, 2004 and 2003 totaled approximately $69.1 million, $65.2 million and $45.9 million, respectively. The Company’s export sales are facilitated through independent food brokers located in the United States and the Company’s internal sales staff. For fiscal 2005, 2004 and 2003, the Company made no sales of products produced in a country other than the United States.

(e) AVAILABLE INFORMATION

     Our address on the world wide web is http://www.sandersonfarms.com. The information on our web site is not a part of this document. Our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and all amendments to those reports and the Company’s corporate code of conduct are available, free of charge, through our web site as soon as reasonably practicable after they are filed with the SEC. Information concerning corporate governance matters is also available on the website.

Item 1A. Risk Factors

     Before making an investment in our common stock, investors should consider carefully the following risks.

     Industry cyclicality can affect our earnings, especially due to fluctuations in commodity prices of feed ingredients, chicken and alternative proteins.

     Profitability in the poultry industry is materially affected by the commodity prices of feed ingredients, chicken and alternative proteins, particularly beef. These prices are determined by supply and demand factors. As a result, the poultry industry is subject to wide fluctuations that are called cycles. Typically we do well when chicken and beef prices are high and feed prices are low. We do less well, and sometimes have losses, when chicken and beef prices are low and feed prices are high. It is very difficult to predict when these cycles will occur. All we can safely predict is that they do and will occur.

     Various factors can affect the supply of corn and soybean meal, which are the primary ingredients of the feed we use. In particular, global weather patterns, the global level of supply inventories and demand for feed ingredients, currency fluctuations and the agricultural policies of the United States and foreign governments all affect the supply of feed ingredients. Weather patterns often change agricultural conditions in an unpredictable manner. A sudden and significant change in weather patterns could affect supplies of feed ingredients, as well as both the industry’s and our ability to obtain feed ingredients, grow chickens or deliver products. Increases in the prices of feed ingredients will result in increases in raw material costs and operating costs. Because our chicken prices are related to the commodity prices of chickens, we typically are not able to increase our product prices to offset these increased grain costs. We periodically enter into contracts to purchase feed ingredients at current prices for future delivery to manage our feed ingredient costs. This practice reduces but does not eliminate the risk of increased operating costs from commodity price increases.

     Outbreaks of avian disease, such as avian influenza, or the perception that outbreaks may occur, can significantly restrict our ability to conduct our operations.

     We take reasonable precautions to ensure that our flocks are healthy and that our processing plants and other facilities operate in a sanitary and environmentally sound manner. Nevertheless, events beyond our control, such as the outbreak of avian disease, even if it does not affect our flocks, could significantly restrict our ability to conduct our operations or our sales. An outbreak of disease could result in governmental restrictions on the import and export of fresh chicken, including our fresh chicken products, or other products to or from our suppliers,

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facilities or customers, or require us to destroy one or more of our flocks. This could result in the cancellation of orders by our customers and create adverse publicity that may have a material adverse effect on our business, reputation and prospects. In addition, world wide fears about avian disease, such as avian influenza, have depressed, and may continue to depress, demand for fresh chicken, which would adversely impact our sales.

     In recent months there has been substantial publicity regarding a highly pathogenic strain of avian influenza, known as H5N1, which has affected Asia since 2002 and which has been found in Eastern Europe. It is widely believed that H5N1 is spread by migratory birds, such as ducks and geese. There have also been some cases where H5N1 is believed to have passed from birds to humans as humans came into contact with live birds that were infected with the disease.

     Although H5N1 has not been identified in North America, there have been outbreaks of low pathogenic strains of avian influenza in North America, including in the U.S. in 2002 and 2004 and in Mexico for the past several years, including this year. Although these low pathogenic outbreaks have not generated the same level of concern, or received the same level of publicity or been accompanied by the same reduction in demand for poultry products in certain countries as that associated with the highly pathogenic H5N1 strain, they have nevertheless impacted our sales. Accordingly, even if the H5N1 strain does not spread to North America, we cannot assure you that it will not materially adversely affect domestic or international demand for poultry produced in North America, and, if it were to spread to North America, we cannot assure you that it would not significantly affect our operations or the demand for our products, in each case in a manner having a material adverse effect on our business, reputation or prospects.

     A decrease in demand for our products in the export markets could materially and adversely affect our results of operations.

     We export fresh chicken products overseas to Russia and other former Soviet countries, China and Mexico, among other countries. Any disruption to the export markets, such as trade embargos, import bans or quotas could materially impact our sales or create an over supply of chicken in the United States. This, in turn, could cause domestic poultry prices to decline. For example, Russia has imposed quotas on imported chicken that restrict imports from the United States to approximately 74% of 2002 levels, and China and several other Asian countries have in the past banned imports of all U.S. chicken due to fears over avian influenza. Any similar quotas or bans in the future could materially and adversely affect our sales and our results of operations.

     Competition in the poultry industry with other poultry companies, especially companies with greater resources, may make us unable to compete successfully in these industries, which could adversely affect our business.

     The poultry industry is highly competitive. Some of our competitors have greater financial and marketing resources than we have.

     In general, the competitive factors in the U.S. poultry industry include:

• price;

• product quality;

• brand identification;

• breadth of product line and

• customer service.

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     Competitive factors vary by major market. In the foodservice market, competition is based on consistent quality, product development, service and price. In the U.S. retail market, we believe that competition is based on product quality, brand awareness and customer service. Our success depends in part on our ability to manage costs and be efficient in the highly competitive poultry industry.

     The loss of our major customers could have a material adverse effect on our results of operations.

     Our sales to our top ten customers represented 50.9% of our net sales during the 2005 fiscal year. Our non-chill pack customers, with whom we generally do not have long-term contracts, could significantly reduce or cease their purchases from us with little or no advance notice, which could materially and adversely affect our sales and results of operations. One of our top ten customers is in a reorganization proceeding, and we are uncertain whether it will remain a customer or at what level of sales.

     We must identify changing consumer preferences and develop and offer food products to meet their preferences.

     Consumer preferences evolve over time and the success of our food products depends on our ability to identify the tastes and dietary habits of consumers and to offer products that appeal to their preferences. We introduce new products and improved products from time to time and incur significant development and marketing cost. If our products fail to meet consumer preference, then our strategy to grow sales and profits with new products will be less successful.

     Inclement weather, such as excessive heat or storms, could hurt our flocks, which could in turn have a material adverse affect on our results of operations.

     Extreme weather in the Gulf South region where we operate, such as excessive heat, hurricanes or other storms, could impair the health or growth of our flocks or interfere with our hatching, production or shipping operations due to power outages, fuel shortages, damage to infrastructure, or disruption of shipping channels, among other things. Any of these factors could materially and adversely affect our results of operations.

     We rely heavily on the services of key personnel.

     We depend substantially on the leadership of a small number of executive officers and other key employees. We do not have employment agreements with these persons and they would not be bound by non-competition agreements or non-solicitation agreements if they were to leave us. The loss of the services of these persons could have a material adverse effect on our business, results of operations and financial condition.

     We depend on the availability of, and good relations with, our employees and contract growers.

     We have approximately 8,600 employees, 3,105 of which are covered by collective bargaining agreements or are members of labor unions. In addition, we contract with over 600 independent farms in Mississippi, Louisiana, Texas and Georgia for the grow-out of our breeder and broiler stock and the production of broiler eggs. Our operations depend on the availability of labor and contract growers and maintaining good relations with these persons and with labor unions. If we fail to maintain good relations with our employees or with the unions, we may experience labor strikes or work stoppages. If we do not attract and maintain contracts with our growers, our production operations could be negatively impacted.

     If our poultry products become contaminated, we may be subject to product liability claims and product recalls.

     Poultry products may be subject to contamination by disease-producing organisms, or pathogens, such as Listeria monocytogenes, Salmonella and generic E. coli. These pathogens are generally found in the environment

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and, as a result, there is a risk that they, as a result of food processing, could be present in our processed poultry products. These pathogens can also be introduced as a result of improper handling by our customers, consumers or third parties after we have shipped the products. We control these risks through careful processing and testing of our finished product, but we cannot entirely eliminate them. We have little, if any, control over proper handling once the product has been shipped. Nevertheless, contamination that results from improper handling by our customers, consumers or third parties, or tampering with our products by those persons, may be blamed on us. Any publicity regarding product contamination or resulting illness or death could adversely affect us even if we did not cause the contamination and could have a material adverse effect on our business, reputation and future prospects. We could be required to recall our products if they are contaminated or damaged and product liability claims could be asserted against us.

     We are exposed to risks relating to product liability, product recalls, property damage and injuries to persons, for which insurance coverage is expensive, limited and potentially inadequate.

     Our business operations entail a number of risks, including risks relating to product liability claims, product recalls, property damage and injuries to persons. We currently maintain insurance with respect to certain of these risks, including product liability and recall insurance, property insurance, workers compensation insurance and general liability insurance, but in many cases such insurance is expensive and difficult to obtain. We cannot assure you that we can maintain on reasonable terms sufficient coverage to protect us against losses due to any of these events.

     We would be adversely affected if we expand our business by acquiring other businesses or by building new processing plants, but fail to successfully integrate the acquired business or run a new plant efficiently.

     We regularly evaluate expansion opportunities such as acquiring other businesses or building new processing plants. Significant expansion involves risks such as additional debt and integrating the acquired business or new plant into our operations. In evaluating expansion opportunities, we carefully consider the effect that financing the opportunity will have on our financial condition. Successful expansion depends on our ability to integrate the acquired business or efficiently run the new plant. If we are unable to do this, expansion could adversely affect our operations, financial results and prospects.

     Governmental regulation is a constant factor affecting our business.

     The poultry industry is subject to federal, state, local and foreign governmental regulation relating to the processing, packaging, storage, distribution, advertising, labeling, quality and safety of food products. Unknown matters, new laws and regulations, or stricter interpretations of existing laws or regulations may materially affect our business or operations in the future. Our failure to comply with applicable laws and regulations could subject us to administrative penalties and civil remedies, including fines, injunctions and recalls of our products. Our operations are also subject to extensive and increasingly stringent regulations administered by the Environmental Protection Agency, which pertain to the discharge of materials into the environment and the handling and disposition of wastes. Failure to comply with these regulations can have serious consequences, including civil and administrative penalties and negative publicity.

     Our stock price may be volatile.

     The market price of our common stock could be subject to wide fluctuations in response to factors such as the following, many of which are beyond our control:

• market cyclicality and fluctuations in the price of feed grains and chicken products, as described above;

• quarterly variations in our operating results, or results that vary from the expectations of securities analysts and investors;

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• changes in investor perceptions of the poultry industry in general, including our competitors and

• general economic and competitive conditions.

     In addition, purchases or sales of large quantities of our stock could have an unusual effect on our market price.

     Anti-takeover provisions in our charter and by-laws may make it difficult for anyone to acquire us without approval of our board of directors.

     Our articles of incorporation and by-laws contain provisions designed to discourage attempts to acquire control of our company without the approval of our board of directors. These provisions include a classified board of directors, advance notification requirements for stockholders to nominate persons for election to the board and to make stockholder proposals, special stockholder voting requirements and a “poison pill” that discourages acquisitions of shares that could increase ownership beyond 20% of our total shares. These measures may discourage offers to acquire us and may permit our board of directors to choose not to entertain offers to purchase us, even offers that are at a substantial premium to the market price of our stock. Our stockholders may therefore be deprived of opportunities to profit from a sale of control of our company.

Item 1B. Unresolved Staff Comments.

     Not applicable.

Item 2. Properties.

     The Registrant’s principal properties are as follows:

Use	Location (City, State)
Poultry complex, including poultry processing plant, hatchery and feedmill	Laurel, Mississippi
Poultry complex, including poultry processing plant, hatchery and feedmill	Pike County, Mississippi
Poultry complex, including poultry processing plant, hatchery and feedmill	Hazlehurst and Gallman, Mississippi
Poultry complex, including poultry processing plant, hatchery and feedmill	Brazos and Robertson Counties, Texas
Poultry complex, including poultry processing plant, hatchery and feedmill	Moultrie and Adel, Georgia
Poultry processing plant	Hammond, Louisiana
Poultry processing plant, hatchery and child care facility	Collins, Mississippi
Prepared food plant	Jackson, Mississippi
Corporate general offices	Laurel, Mississippi

     The Registrant owns substantially all of its major operating facilities with the following exceptions: one processing plant and feed mill complex is leased on an annual renewal basis through 2063 with an option to purchase at a nominal amount, at the end of the lease term. One processing plant complex is leased under four leases, which are renewable annually through 2061, 2063, 2075 and 2073, respectively. Certain infrastructure improvements associated with a processing plant are leased under a lease, which expires in 2012 and is thereafter renewable annually through 2091. All of the foregoing leases are capital leases.

     There are no material encumbrances on the major operating facilities owned by the Registrant, except that the plant of Sanderson Farms, Inc. (Foods Division) is encumbered by a mortgage which collateralizes a note with an

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outstanding principal balance of $598,000 on October 31, 2005, which bears interest at the rate of 5.0% per annum and is payable in equal annual installments through 2009. In addition, under the terms of the Company’s revolving credit agreement and under its $20 million long-term fixed rate loan agreements effective in February 1993 and June 1999, the Registrant may not pledge any additional assets as collateral other than fixed assets up to 15.0% of its tangible assets.

     Management believes that the Company’s facilities are suitable for its current purposes, and believes that current renovations and expansions will enhance present operations and allow for future internal growth.

Item 3. 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 Company’s 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 Company’s motion to dismiss was denied, the court’s 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 all 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 Company’s 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. The first of the six trials is currently set for September 18, 2006.

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     On September 26, 2000, three current and former contract growers filed suit against the Company in the Chancery Court of Lawrence County, Mississippi. The plaintiffs filed suit on behalf of “all Mississippi residents to whom, between, on or about November 1981 and the present, the Company induced into growing chickens for it and paid compensation under the so-called ‘ranking system’.” Plaintiffs allege that the Company “has defrauded plaintiffs by unilaterally imposing and utilizing the so-called ‘ranking system’ which wrongfully places each grower into a competitive posture against other growers and arbitrarily penalizes each less successful grower based upon criteria which were never revealed, explained or discussed with plaintiffs.” Plaintiffs further allege that they are required to accept chicks that are genetically different and with varying degrees of healthiness, and feed of dissimilar quantity and quality. Finally, plaintiffs allege that they are ranked against each other although they possess dissimilar facilities, equipment and technology. Plaintiffs seek an unspecified amount in compensatory and punitive damages, as well as varying forms of equitable relief.

     The Company is vigorously defending and will continue to vigorously defend this action. On November 22, 2002, the Court denied the Company’s motions to compel arbitration, challenging the jurisdiction of the Chancery Court of Lawrence County, Mississippi, and seeking to have the case dismissed pursuant to rule 5(c) of the Mississippi Rules of Civil Procedure. The Company then filed its motion for interlocutory appeal on these issues with the Mississippi Supreme Court. On December 6, 2002, the Mississippi Supreme Court agreed to hear this motion and stayed the action in the Chancery Court pending disposition of this motion. The Company’s motion for interlocutory appeal was granted and this matter is pending before the Mississippi Supreme Court. The Supreme Court granted the Company’s request that this case be consolidated with a second grower suit discussed below. Both this matter and the matter discussed below were decided by the court on October 6, 2005 with a decision in favor of the Company. The plaintiffs have indicated they plan to request a rehearing before the court and have until January 18, 2006 to file such a request.

     On August 2, 2002, three contract egg producers filed suit against the Company in the Chancery Court of Jefferson Davis County, Mississippi. The Plaintiffs filed suit on behalf of “all Mississippi residents who, between June 1993 and the present, [the Company] fraudulently and negligently induced into housing, feeding and providing water for [the Company’s] breeder flocks and gathering, grading, packaging and storing the hatch eggs generated by said flocks and who have been compensated under the payment method established by the [Company].” Plaintiffs alleged that the Company “has defrauded Plaintiffs by unilaterally imposing and utilizing a method of payment which wrongfully and arbitrarily penalizes each grower based upon criteria which are under the control of the [Company] and which were never revealed, explained or discussed with each Plaintiff.” Plaintiffs allege that they were required to accept breeder hens and roosters which are genetically different, with varying degrees of healthiness, and feed of dissimilar quantity and quality. Plaintiffs further allege contamination of and damage to their real property. Plaintiffs alleged that they were “fraudulently and negligently induced into housing, feeding and providing water for the Company’s breeder flocks and gathering, grading, packaging and storing the hatch eggs produced from said flocks” for the Company. Plaintiffs seek unspecified amount of compensatory and punitive damages, as well as various forms of equitable relief.

     On September 5, 2002, the Company filed its Motion to Dismiss and/or Transfer Jurisdiction and/or to Compel Arbitration and/or for Change of Venue. A hearing of this motion was completed on November 18, 2003. Prior to completion of the hearing, the Company filed a request with the American Arbitration Association (“AAA”) to arbitrate the claims made in this lawsuit. On June 7, 2004, the Chancery Court of Jefferson Davis County, Mississippi entered an Order denying all of the relief requested by the Company in its motion dated September 5, 2002. On June 29, 2004, the Company filed a Notice of Appeal and/or, in the Alternative, Petition to Appeal from Interlocutory Order and Motion for Stay Pursuant to M.R.A.P.5(c) with the Mississippi Supreme Court, requesting appellate review of the Chancery Court’s Order. On August 11, 2004, the Mississippi Supreme Court entered its Order accepting jurisdiction under the Notice of Appeal portion of the Company’s June 29, 2004 filing, but dismissed the Alternative Petition for Interlocutory Appeal portion of the same filing as moot. The court also agreed to consolidate this case with the broiler grower lawsuit described above. The Mississippi Supreme Court continued the stay previously entered, holding in abeyance the trial court proceedings pending a ruling by it on the consolidated appeals of both grower lawsuits. On October 6, 2005, the court decided this matter, together with the

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grower suit discussed above, in favor of the Company. The plaintiffs have indicated they plan to request a rehearing before the court and have until January 18, 2006 to file such a request.

     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 Company’s consolidated results of operation or financial position.

Item 4. Submission of Matters to a Vote of Security Holders.

     No matters were submitted to a vote of the Registrant’s security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the Fiscal Year.

Item 4A. Executive Officers of the Registrant.

				Executive
Name	Age		Office	Officer Since
Joe F. Sanderson, Jr.		58	Chairman of the Board of Directors and Chief Executive Officer	1984 (1)
Lampkin Butts		54	President and Chief Operating Officer, Director	1996 (4)
D. Michael Cockrell		48	Treasurer and Chief Financial Officer, Director	1993 (2)
James A. Grimes		57	Secretary and Chief Accounting Officer	1993 (3)

(1)	Joe F. Sanderson, Jr. has served as Chief Executive Officer of the Registrant since November 1, 1989, and as Chairman of the Board since January 8, 1998. Mr. Sanderson served as President from November 1, 1989, to October 21, 2004. From January 1984 to November 1989, Mr. Sanderson served as Vice-President, Processing and Marketing of the Registrant.
(2)	D. Michael Cockrell became Treasurer and Chief Financial Officer of the Registrant effective November 1, 1993, and was elected to the Board of Directors on February 19, 1998. Prior to that time, for more than five years, Mr. Cockrell was a member and shareholder of the Jackson, Mississippi law firm of Wise Carter Child & Caraway, Professional Association.
(3)	James A. Grimes became Secretary of the Registrant effective November 1, 1993. Mr. Grimes also serves as Chief Accounting Officer, which position he has held since 1985.
(4)	Lampkin Butts was elected President and Chief Operating Officer of the Registrant effective October 21, 2004. From November 1, 1996 to October 21, 2004, Mr. Butts served as Vice President – Sales and was elected to the Board of Directors on February 19, 1998. Prior to that time, Mr. Butts served the Registrant in various capacities since 1973.

     Executive officers of the Company serve at the pleasure of the Board of Directors. There are no understandings or agreements relating to any person’s service or prospective service as an executive officer of the Registrant.

PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters.

     The Company’s common stock is traded on the NASDAQ National Market System under the symbol SAFM.

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     The number of stockholders as of November 30, 2005, was 2,446.

     The following table shows quarterly cash dividends and quarterly high and low closing prices for the common stock for the past two fiscal years. National Market System quotations are based on actual sales prices.

	Stock Price
Fiscal Year 2005	High		Low		Dividends
First Quarter	$	43.80	$	32.17	$	.10
Second Quarter	$	46.64	$	36.24	$	.10
Third Quarter	$	48.42	$	36.80	$	.10
Fourth Quarter	$	42.49	$	32.96	$	.12

	Stock Price
Fiscal Year 2004	High		Low		Dividends
First Quarter	$	32.77	$	22.79	$	.08
Second Quarter	$	42.00	$	33.22	$	.08
Third Quarter	$	55.14	$	37.21	$	.08
Fourth Quarter	$	48.67	$	31.49	$	.60

On December 28, 2005 the closing sales price for the common stock was $31.17 per share.

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Item 6. Selected Financial Data.

	Year Ended October 31
	2005		2004		2003		2002		2001
	(In thousands, except per share data)
Net sales	$	1,006,185	$	1,052,297	$	872,235	$	743,665	$	706,002
Operating income		113,484		150,154		90,522		49,977		51,094
Net income		70,638		91,428		54,061		28,840		27,784
Basic earnings per share		3.53		4.62		2.78		1.45		1.36
Diluted earnings per share		3.51		4.57		2.75		1.43		1.36
Working capital		107,631		150,624		82,236		68,452		76,969
Total assets		445,791		375,007		298,905		280,510		288,971
Long-term debt, less current maturities		6,511		10,918		21,604		49,969		77,212
Stockholders’ equity		345,653		279,341		197,099		155,891		144,339
Cash dividends declared per share	$	.42	$	.84	$	.61	$	.27	$	.13

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE PERFORMANCE

This Annual 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 Company’s 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 Company’s or the industry’s 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 Company’s poultry products.

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(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.

GENERAL

The Company’s poultry operations are integrated through its control 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 Company’s profitability is substantially impacted by the market price 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 Company’s poultry operations, including hatching egg production, hatching, growing, and processing cost, are responsive to efficient cost containment programs and management practices. Over the past three fiscal years, these other production costs have averaged approximately 62.1% of the Company’s total production costs.

The Company believes that value-added products are subject to less price volatility and generate higher, more consistent profit margin than whole chickens ice packed and shipped in bulk form. To reduce its exposure to market cyclicality that has historically characterized commodity chicken market prices, the Company has increasingly concentrated on the production and marketing of value-added product lines with emphasis on product quality, customer service, and brand recognition. The Company adds value to its poultry products by performing one or more processing steps beyond the stage where the whole chicken is first saleable as a finished product, such as cutting, deep chilling, packaging and labeling the product. The Company believes that one of its major strengths is its ability to change its product mix to meet customer demands.

The Company’s processed and prepared foods product line includes approximately 100 institutional and consumer packaged food items that it sells nationally, primarily to distributors and food service establishments. A majority of the prepared food items are made to the specifications of food service users.

Poultry prices per pound, as measured by the Georgia Dock price, fluctuated during the three years ended October 31, 2005 as follows:

	1st			2nd		3rd			4th
	Quarter			Quarter		Quarter			Quarter
Fiscal 2005
High	$	.7525	*	$	.7400	$	.7475		$	.7525	*
Low	$	.7325	*	$	.7375	$	.7400		$	.7425
Fiscal 2004
High	$	.7000		$	.7500	$	.8100	*	$	.8075
Low	$	.6825	*	$	.7050	$	.7525		$	.7575
Fiscal 2003
High	$	.6250		$	.6400	$	.6775		$	.6925	*
Low	$	.6125	*	$	.6250	$	.6350		$	.6800

*Year High/Low

On January 29, 2004, the Company announced a three-for-two stock split to be effected as a 50% stock dividend. The new shares were distributed on February 26, 2004, to stockholders of record as of close of business on February

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10, 2004. Per share information in this Annual Report reflects the stock split. Cash was paid in lieu of fractional shares.

EXECUTIVE OVERVIEW OF RESULTS — 2005

The Company’s financial results for the fiscal year ended October 31, 2005 reflect strong market prices for dark meat poultry products as well as favorable prices for feed grains. Although overall market prices for the Company’s poultry products were lower during fiscal 2005 as compared to the historical highs experienced during fiscal 2004, the Company was able to partially offset the reduced selling prices with lower costs of corn and soybean meal ingredients. The Company’s cost of corn and soybean meal was $60.0 million lower during fiscal 2005 as compared to fiscal 2004. During the fourth quarter of fiscal 2005, the Company was negatively impacted by Hurricane Katrina and had an estimated reduction in its operating income during the fourth quarter of $7.9 million related to the storm. The Company believes the remaining effects of lost production and additional expenses that will be incurred related to Hurricane Katrina during the first quarter of fiscal 2006 will be substantially covered by the Company’s insurance policies.

RESULTS OF OPERATIONS

Fiscal 2005 Compared to Fiscal 2004

The Company’s net sales during fiscal 2005 were $1.0 billion, a decrease of $46.1 million or 4.4% as compared to fiscal 2004. This reduction reflects lower prices for the Company’s poultry products of 6.5% during fiscal 2005 as compared to fiscal 2004, offset by an increase in the pounds of poultry products sold of 2.8%. The decrease in the average sale price of the Company’s poultry products resulted primarily from decreases in the market prices of boneless breast meat, tenders and wings of 24.9%, 30.8% and 12.4%, respectively. However, the softness in these prices were partially offset by strong export demand for leg quarters and paws during fiscal 2005. Bulk leg quarter prices were approximately 17.9% higher for fiscal 2005 as compared to fiscal 2004. A simple average of the Georgia Dock prices for whole chickens decreased only 0.6% for fiscal 2005 as compared to fiscal 2004. During the fourth quarter of fiscal 2005 the Company’s pounds of poultry products sold were lower because of chickens lost during Hurricane Katrina and a reduction in leg quarters sold in the export market because of hurricane related disruptions. Net sales of prepared food products decreased $9.2 million or 8.6% and resulted from a decrease in the pounds of prepared food products sold of 8.2% and a decrease in the average sale price of prepared food products sold of 0.5%.

Cost of sales for the fiscal year ended October 31, 2005, were $826.7 million, a decrease of $15.7 million, or 1.9%, as compared to the fiscal year ended October 31, 2004. This decrease resulted from the lower cost of feed grains during fiscal 2005 as compared to fiscal 2004, which result was partially offset by the increase in the pounds of poultry products sold of 2.8% and increased cost of sales incurred at the new poultry complex in South Georgia. A simple average of the corn and soybean meal cash market prices during fiscal 2005 as compared to fiscal 2004 reflects decreases of 16.0% and 23.3%, respectively. Cost of sales of prepared food products decreased 18.6% due to the 24.9% reduction in prices for boneless breast meat. Boneless breast meat is a major component of the prepared foods division’s costs of sales and is purchased from the Company’s poultry operations.

Selling, general and administrative costs for fiscal 2005 were $66.0 million as compared to $59.8 million for fiscal 2004, an increase of $6.2 million. Approximately $4.1 million of the increase was due to the Company’s start up of the new poultry complex in Moultrie and Adel, Georgia. Expenses incurred prior to the start up of the complex which were incurred during the first three quarters of the fiscal year were included in selling, general and administrative costs. During the fourth quarter of fiscal 2005 the costs of operations at the new complex were included in cost of sales.

For fiscal 2005 the Company’s operating income was $113.5 million as compared to $150.2 million for fiscal 2004, a decrease of $36.7 million. The overall lower prices for poultry products were partially offset by the favorable prices for feed grains during fiscal 2005 as compared to fiscal 2004. The Company’s operating income was

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negatively impacted by $7.9 million from Hurricane Katrina during the fourth quarter of fiscal 2005. The total reduction in operating income of $7.9 million relates to the insurance deductible of $2,750,000 and incurred but unrecognized lost profits and expenses of $5.1 million. The unrecognized lost profits and expenses were the direct result of the effect of Hurricane Katrina and the Company’s efforts to minimize the potential loss from the hurricane. In addition, the Company’s operating income was negatively impacted by the start up of the new complex in South Georgia. The Company expects that the impact of Hurricane Katrina on its operating income during fiscal 2006 to be minimal, as such impact will be substantially covered by the Company’s insurance policies. Also during fiscal 2006, the Company’s cost structure will improve as the new complex in South Georgia reaches full capacity during the summer of 2006.

Interest expense during fiscal 2005 was $433,000, a 72.4% decrease from the $1.6 million expensed during fiscal 2004. The reduction in interest expense was due to the capitalization of interest incurred to the cost of construction of the new complex in South Georgia and the new general offices in Laurel, Mississippi and, to a lesser extent, lower outstanding debt.

The Company’s effective tax rate during fiscal 2005 and fiscal 2004 was 38.30% and 38.75%, respectively.

Net income for the fiscal year ended October 31, 2005 was $70.6 million, or $3.51 per diluted share. For fiscal 2004, the Company’s net income was $91.4 million, or $4.57 per diluted share. During the fourth quarter of fiscal 2005 the Company had an estimated reduction in its operating income from Hurricane Katrina of $7.9 million. The $7.9 million before income taxes consist of the deductible under the Company’s insurance policies and certain expenses and lost profits of $5.1 million. The Company intends to seek reimbursement for the unrecognized lost profits and incurred expense of $5.1 million and the $14.9 million recognized as of October 31, 2005. Negotiations with the Company’s insurance carriers are expected to be completed during 2006.

EXECUTIVE OVERVIEW OF RESULTS — 2004

Results for the fiscal year ended October 31, 2004 were driven by record high chicken market prices, although feed ingredient costs were also higher than the fiscal year ended October 31, 2003. Higher chicken prices also more than offset higher advertising costs incurred as part of the Company’s fiscal 2004 advertising and marketing program and a reduction in settlement proceeds from vitamin and methionine suppliers.

RESULTS OF OPERATIONS

Fiscal 2004 Compared to Fiscal 2003

For fiscal 2004 the Company’s net sales were a record $1.1 billion, an increase of $180.1 million, or 20.6%, over the previous fiscal year’s record net sales of $872.2 million. The increase in the Company’s net sales was due to favorable market prices of the Company’s poultry products and an increase in the pounds of poultry products sold of 6.1%. As measured by a simple average of the Georgia dock price for whole chickens, prices increased 15.0% during fiscal 2004 as compared to fiscal 2003. Also, average market prices for boneless breast, leg quarters and wings all showed considerable strength during fiscal 2004 as compared to fiscal 2003 and increased 22.0%, 41.0% and 65.2%, respectively. Although these same market prices were higher during the fourth quarter of fiscal 2004 as compared to the fourth quarter of fiscal 2003, they were less favorable during the fourth quarter of fiscal 2004 than the Company experienced for the first three quarters of fiscal 2004. The increase in the pounds of poultry products sold resulted primarily from an increase in the average live weight of chickens sold during fiscal 2004 as compared to fiscal 2003. Net sales of prepared food products decreased $6.2 million or 5.5%, as a result of a decrease in the pounds of prepared food products sold of 6.3%.

The Company’s cost of sales were $842.3 million during fiscal 2004 as compared to $741.4 million during fiscal 2003. Cost of sales of the Company’s poultry products during fiscal 2004 were $734.2 million as compared to $638.9 million during the previous fiscal year, an increase of $95.3 million or 14.2%. The increase in the Company’s cost of sales of poultry products resulted from an increase in the cost of feed grains, and to a lesser

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extent, an increase in the pounds of poultry products sold of 6.1% during fiscal 2004 as compared to fiscal 2003. In addition, during fiscal 2004 and fiscal 2003 the Company’s cost of sales were reduced by $0.3 million and $12.4 million, respectively, from proceeds related to lawsuits against vitamin and methionine suppliers.

The Company’s cost of corn and soybean meal, the Company’s primary feed ingredients, increased approximately 6.8% and 52.1% for the fiscal year ended October 31, 2004 as compared to the fiscal year ended October 31, 2003. Cost of sales of prepared food products increased $5.6 million or 5.5% due to an increase in poultry prices. The prepared foods operation purchases most of its chicken from the Company’s poultry operations, and such chicken is a major component of its raw materials.

Selling, general and administrative expenses for fiscal 2004 were $59.8 million as compared to $40.3 million, an increase of $19.5 million. This increase is primarily due to the cost of the Company’s advertising program and increased contributions to the Employee Stock Ownership Plan (“ ESOP”). The Company’s fiscal 2004 advertising program began in January 2004 and cost the Company approximately $14.0 million during fiscal 2004. The Company continued and expanded this program with new ads and in new markets during fiscal 2005. During fiscal 2004 the Company contributed $7.0 million to the ESOP, an increase of $3.0 million as compared to the contribution the Company made during fiscal 2003 of $4.0 million.

The Company’s operating income for the fiscal year ended October 31, 2004 was a record $150.1 million as compared to $90.5 million during the fiscal year ended October 31, 2003. This increase in the Company’s operating income of $59.6 million resulted from the favorable market for poultry products and continued strong operating performance. These factors enabled the Company to more than offset increased feed costs and the benefit received from additional settlement proceeds received during fiscal 2003 as compared to fiscal 2004.

During fiscal 2004, interest expense was $1.6 million as compared to $2.5 million during fiscal 2003. This decrease reflects lower outstanding debt during fiscal 2004 as compared to fiscal 2003. The Company’s total debt at October 31, 2004 was $15.3 as compared to $26.0 million as of October 31, 2003.

The Company’s effective tax rate during fiscal 2004 and fiscal 2003 was 38.75% and 38.68%, respectively.

Net income for the fiscal year ended October 31, 2004 was $91.4 million, or $4.57 per diluted share, compared with net income of $54.1 million, or $2.75 per diluted share for the fiscal year ended October 31, 2003. During fiscal 2004, the Company recognized $177,000, net of income taxes, for Sanderson Farms’ share in the partial settlement of lawsuits against vitamin and methionine suppliers for overcharges, compared with total similar recoveries of $7.6 million, net of income taxes, or $0.38 per diluted share, during fiscal 2003.

Liquidity and Capital Resources

The Company’s working capital at October 31, 2005 was $107.6 million and its current ratio was 2.4 to 1. This compares to working capital of $150.6 million and a current ratio of 3.3 to 1 as of October 31, 2004. During fiscal 2005 the Company spent approximately $128.1 million on planned capital projects, which include $92.3 million on the new complex in south Georgia and $15.1 million on the new general offices in Laurel, Mississippi.

On January 29, 2004, the Company announced a three-for-two stock split to be effected as a 50% stock dividend. The new shares were distributed on February 26, 2004, to stockholders of record as of close of business on February 10, 2004. Share and per share data have been adjusted to reflect this stock split.

The Company’s capital budget for fiscal 2006 is approximately $73.4 million, and will be funded by cash on hand, internally generated working capital and cash flows from operations. If needed, the Company has a $200.0 million revolving line of credit available. The $73.4 million fiscal 2006 capital budget includes approximately $7.9 million in operating leases and $10.0 million to complete construction of the new corporate office building in Laurel, Mississippi. In addition, the fiscal 2006 capital budget includes $22.4 million to build a feed mill in Collins, Mississippi, complete the conversion of the Collins, Mississippi processing facility to a big bird deboning plant,

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expand the Collins, Mississippi hatchery and $4.8 million to improve operating efficiencies at the Company’s prepared foods plant in Jackson, Mississippi. Without operating leases, the new office building and capital investment in Collins and Jackson, Mississippi, the Company’s capital budget for fiscal 2006 would be $28.3 million.

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 Company’s 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.

On April 26, 2004, the Company gave notice to U.S. Bank National Association, as trustee under the Indenture of Trust dated as of November 16, 1995, related to the Robinson County Industrial Development Corporation Variable Rate Demand Industrial Development Revenue Bonds (Sanderson Farms, Inc. Project) Series 1995 (“Bonds”), of the Company’s intent to exercise its right to call all of the Bonds for optional redemption on June 1, 2004 (the “Redemption Date”) at a redemption price of 100% of the principal amount of the Bonds plus accrued interest to the Redemption Date. The Trustee redeemed the Bonds on June 1, 2004.

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 Company’s ability to raise debt or equity capital on terms and at costs satisfactory to the Company, and the effect of such opportunities on the Company’s balance sheet, are critical considerations in any such evaluation.

Contractual Obligations

Obligations under long-term debt, long-term capital leases, non-cancelable operating leases, purchase obligations relating to feed grains, other feed ingredients and packaging supplies and claims payable relating to the Company’s workers’ compensation insurance policy at October 31, 2005 were as follows (in thousands):

	Payments Due By Period
					1 - 3		3 - 5		More than
Contractual Obligations	Total		Less than 1 Year		Years		Years		5 Years
Long-term debt	$	8,597	$	4,131	$	4,283	$	183	$	0
Capital lease obligations		2,320		275		605		680		760
Operating leases		19,032		5,643		8,518		4,793		78
Purchase obligations:
Feed grains, feed ingredients and packaging supplies		155,314		155,314		0		0		0
Construction contracts		18,127		18,127		0		0		0
Claims payable		6,611		3,711		2,900		0		0
Total	$	210,001	$	187,201	$	16,306	$	5,656	$	838

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.

Allowance for Doubtful Accounts

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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 based on an individual assessment of a customer’s credit quality as well as subjective factors and trends, including the aging of receivable balances. In circumstances where management is aware of a specific customer’s 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 customer’s 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 Katrina

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 Company’s insurance policies will be recognized when the insurance proceeds are received.

Hurricane Katrina struck Mississippi and Louisiana on August 29, 2005, and resulted in significant damage to South Mississippi and Southeastern Louisiana. Although the Company experienced no significant damage to any of its facilities in the affected areas, the Company’s operations throughout the region were affected by the loss of electricity to the Company’s facilities and to the facilities of the Company’s independent contract growers. Hurricane Katrina also destroyed approximately three million live chickens and approximately 5.2 million hatching eggs were either lost or destroyed and were not placed as broiler chicks. In addition, Hurricane Katrina destroyed approximately $2.5 million of processed inventory in independent contract cold storage facilities, as well as a lesser amount of processed product and other inventory in Company owned facilities.

The Company’s financial statements for the fourth fiscal quarter and year ended October 31, 2005, reflect a receivable from the Company’s insurance carriers of $14.9 million for property damage, expenses incurred and lost profits resulting from Hurricane Katrina. The Company’s total insurance claim through October 31, 2005, for property damage, expenses incurred and lost profits is $20.0 million, net of the applicable deductible of $2,750,000. The total reduction in operating income of $7.9 million relates to the deductible of $2,750,000 and incurred but unrecognized lost profits and expenses of approximately $5.1 million. The unrecognized lost profits and expenses of $5.1 million were the direct result of the effect of Hurricane Katrina and the Company’s efforts to minimize the potential loss from the hurricane and will be recognized once negotiations with the insurance carriers are complete and the final amounts are determined. The Company intends to seek reimbursement for all of its insured losses, including the unrecognized lost profits and expenses. Negotiations with the Company’s insurance carriers are expected to be completed during 2006. The Company believes the remaining effects of lost production and additional expenses related to Hurricane Katrina that will be incurred during the first fiscal quarter of 2006 will also be substantially covered by the Company’s insurance policies.

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 Company’s 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

27

straight-line method. Mortality of broilers and breeders is charged to cost of sales as incurred. If market prices for chicks, 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 reevaluates 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 reevaluation, 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 Company’s assumptions with respect to the future expected cash flows associated with the use of long-lived assets currently recorded change, then the Company’s determination that no impairment charges are necessary may change and result in the Company recording an impairment charge in a future period.

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 Company’s 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 Company’s 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 computing the Company’s income tax expense. Any audit adjustments affecting permanent differences could have an impact on the Company’s effective tax rate.

Contingencies

The Company is a party to a number of legal proceedings and recognizes 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. At this time, the Company has not accrued any reserve for any of these matters. Future reserves may be required due to changes in the Company’s assumptions, the effectiveness of legal strategies, or other factors beyond the Company’s control. Future results of operations may be materially affected by the creation of or changes to reserves.

New Accounting Pronouncements

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

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Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in Statement 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company is required to adopt SFAS No. 123(R) in the first quarter of fiscal 2006.

As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using APB 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 to our audited financial statements. 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. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the income tax benefits of such deductions were $966,000 and $3,726,000 for the fiscal years ended October 31, 2005 and 2004, respectively. Also, under the provision of FAS 123(R), unearned compensation related to unvested restricted stock awards are not recorded. Accordingly, any remaining unearned compensation related to unvested restricted stock awards and the corresponding amount in paid-in capital will no longer be included in stockholders’ equity beginning November 1, 2005.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends Accounting Research Bulletin (“ARB”) 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 during fiscal years beginning after June 15, 2005. The Company is currently assessing the impact that SFAS No. 151 will have on the results of operations, financial position or cash flows.

Item 7A. Quantitative and Qualitative Disclosure 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 Company’s 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 Company’s 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 six 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 Company’s 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:

• Current market prices;

• 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;

29

• 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;

• Current and expected changes to the agricultural policies of the United States and foreign governments;

• 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;

• The current and expected volumes of export of feed grain commodities as reported by governmental and private sources;

• 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

• Current and expected market prices for the Company’s poultry products.

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.

30

Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Sanderson Farms, Inc.

We have audited the accompanying consolidated balance sheets of Sanderson Farms, Inc. and subsidiaries as of October 31, 2005 and 2004, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended October 31, 2005. Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sanderson Farms, Inc. and subsidiaries at October 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Sanderson Farms, Inc.’s internal control over financial reporting as of October 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 22, 2005 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

New Orleans, Louisiana
December 22, 2005

31

Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS

	October 31
	2005			2004
	(In thousands)
Assets
Current assets:
Cash and cash equivalents	$	34,616		$	75,910
Accounts receivable, less allowance of $748,808 in 2005 and $1,555,452 in 2004		38,833			49,240
Receivable from insurance companies		14,892			0
Inventories		84,713			75,603
Refundable income taxes		0			2,592
Prepaid expenses		11,599			13,077
Total current assets		184,653			216,422
Property, plant and equipment:
Land and buildings		212,463			141,727
Machinery and equipment		296,449			257,671
		508,912			399,398
Accumulated depreciation		(249,586	)		(242,685	)
		259,326			156,713
Other assets		1,812			1,872
Total assets	$	445,791		$	375,007
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	24,468		$	30,384
Accrued expenses		48,148			31,029
Current maturities of long-term debt		4,406			4,385
Total current liabilities		77,022			65,798
Long-term debt, less current maturities		6,511			10,918
Claims payable		2,900			2,600
Deferred income taxes		13,705			16,350
Stockholders’ equity:
Preferred Stock:
Series A Junior Participating Preferred Stock, $100 par value: authorized shares-500,000; none issued
Par value to be determined by the Board of Directors: authorized shares-4,500,000; none issued
Common Stock, $1 par value: authorized shares-100,000,000; issued and outstanding shares-20,063,070 in 2005 and 19,959,238 in 2004		20,063			19,959
Paid-in capital		22,657			4,956
Unearned compensation		(13,607	)		0
Retained earnings		316,540			254,426
Total stockholders’ equity		345,653			279,341
Total liabilities and stockholders’ equity	$	445,791		$	375,007

See accompanying notes.

32

Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME

	Years ended October 31
	2005			2004			2003
	(In thousands, except per share data)
Net sales	$	1,006,185		$	1,052,297		$	872,235
Cost and expenses:
Cost of sales		826,670			842,337			741,420
Selling, general and administrative		66,031			59,806			40,293
		892,701			902,143			781,713
Operating income		113,484			150,154			90,522
Other income (expense):
Interest income		1,257			743			80
Interest expense		(433	)		(1,569	)		(2,484	)
Other		173			(60	)		43
		997			(886	)		(2,361	)
Income before income taxes		114,481			149,268			88,161
Income tax expense		43,843			57,840			34,100
Net income	$	70,638		$	91,428		$	54,061
Earnings per share:
Basic	$	3.53		$	4.62		$	2.78
Diluted	$	3.51		$	4.57		$	2.75
Dividends per share	$	.42		$	.84		$	.61
Weighted average shares outstanding:
Basic		20,014			19,789			19,462
Diluted		20,137			19,995			19,689

See accompanying notes.

33

Sanderson Farms, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

																	Total
		Common Stock						Paid-In			Unearned			Retained			Stockholders’
		Shares			Amount			Capital			Compensation			Earnings			Equity
	(In thousands, except shares
	and per share amounts)
Balance at October 31, 2002			13,051,026		$	13,051		$	0		$	0		$	142,840		$	155,891
Net income for year															54,061			54,061
Cash dividends ($.28 per share)															(5,449	)		(5,449	)
Special cash dividends ($.33 per share)															(6,508	)		(6,508	)
Purchase and retirement of common stock			(219,000	)		(219	)		(2,133	)					(2,808	)		(5,160	)
Issuance of common stock			181,850			182			4,082									4,264
Balance at October 31, 2003			13,013,876			13,014			1,949			0			182,136			197,099
Net income for year															91,428			91,428
Cash dividends ($.34 per share)															(6,753	)		(6,753	)
Special cash dividends ($.50 per share)															(9,980	)		(9,980	)
Three-for-two stock split			6,558,726			6,559			(4,186	)					(2,373	)		0
Redemption of fractional shares															(32	)		(32	)
Issuance of common stock			386,636			386			7,193									7,579
Balance at October 31, 2004			19,959,238			19,959			4,956			0			254,426			279,341
Net income for year															70,638			70,638
Cash dividends ( $.42 per share)															(8,524	)		(8,524	)
Issuance of common stock			103,832			104			2,033									2,137
Issuance of restricted common stock									15,668			(15,360	)					308
Amortization of unearned compensation												1,753						1,753
Balance at October 31, 2005			20,063,070		$	20,063		$	22,657		$	(13,607	)	$	316,540		$	345,653

See accompanying notes.

34

SANDERSON FARMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended October 31
	2005			2004			2003
	(In thousands)
Operating activities
Net income	$	70,638		$	91,428		$	54,061
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		24,752			26,326			24,485
Amortization of unearned compensation		1,753			0			0
Provision for losses on accounts receivable		1,063			165			727
Deferred income taxes		(3,115	)		500			(920	)
Change in assets and liabilities:
Accounts receivable		9,344			(3,210	)		(5,849	)
Receivable from insurance companies		(14,892	)		0			0
Inventories		(9,110	)		(13,850	)		(3,789	)
Prepaid expenses and refundable income taxes		4,540			(3,483	)		2,431
Other assets		(95	)		(123	)		(135	)
Accounts payable		(5,916	)		11,351			(6,225	)
Accrued expenses and claims payable		17,419			(6,511	)		11,029
Total adjustments		25,743			11,165			21,754
Net cash provided by operating activities		96,381			102,593			75,815
Investing activities
Capital expenditures		(128,107	)		(27,538	)		(23,430	)
Net proceeds from sale of property and equipment		897			79			394
Other investment		0			(1,597	)		0
Net cash used in investing activities		(127,210	)		(29,056	)		(23,036	)
Financing activities
Net change in revolving credit		0			0			(20,000	)
Principal payments on long-term debt		(4,126	)		(10,420	)		(7,014	)
Principal payments on capital lease obligation		(260	)		(245	)		(230	)
Dividends paid		(8,524	)		(16,733	)		(11,957	)
Purchase and retirement of common stock		0			(32	)		(5,160	)
Net proceeds from common stock issued		2,445			7,579			4,264
Net cash used in financing activities		(10,465	)		(19,851	)		(40,097	)
Net change in cash and cash equivalents		(41,294	)		53,686			12,682
Cash and cash equivalents at beginning of year		75,910			22,224			9,542
Cash and cash equivalents at end of year	$	34,616		$	75,910		$	22,224
Supplemental disclosure of cash flow information:
Income taxes paid	$	33,002		$	63,486		$	20,093
Interest paid	$	1,360		$	1,611		$	2,569

See accompanying notes.

35

Sanderson Farms, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Significant Accounting Policies

     Principles of Consolidation: The consolidated financial statements include the accounts of Sanderson Farms, Inc. (the “Company”) and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

     Business: The Company is engaged in the production, processing, marketing and distribution of fresh and frozen chicken and other prepared food items. The Company’s net sales and cost of sales are significantly affected by market price fluctuations of its principal products sold and of its principal feed ingredients, corn and other grains.

     The Company sells to retailers, distributors and casual dining operators primarily in the southeastern, southwestern and western United States. Revenue is recognized when product is delivered to customers. Revenue on certain international sales is recognized upon transfer of title, which may occur after shipment. Management periodically performs credit evaluations of its customers’ financial condition and generally does not require collateral. No customer accounted for more than 10.0% of consolidated net sales during fiscal 2005. One customer accounted for 12.5% and 11.7%, respectively, of consolidated sales for the years ended October 31, 2004 and October 31, 2003. Shipping and handling costs are included as a component of cost of sales.

Use of Estimates: The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash Equivalents: The Company considers all highly liquid investments with maturities of ninety days or less when purchased to be cash equivalents.

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 based on an individual assessment of a customer’s credit quality as well as subjective factors and trends, including the aging of receivable balances. In circumstances where management is aware of a specific customer’s 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 customer’s 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 Company’s 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.

Live poultry inventories of broilers are stated at the lower of cost or market and breeders at cost less accumulated amortization. The costs associated with breeders, including breeder chicks, feed, medicine and grower pay, are accumulated up to the production stage and amortized over nine months using the straight-line method.

36

Property, Plant and Equipment: Property, plant and equipment is stated at cost. Depreciation of property, plant and equipment is provided by the straight-line and units of production methods over the estimated useful lives of 15 to 39 years for buildings and 3 to 12 years for machinery and equipment.

Impairment of Long-Lived Assets: The Company continually reevaluates the carrying value of its long-lived assets for events or changes in circumstances which indicate that the carrying value may not be recoverable. As part of this reevaluation, 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 through a charge to operations.

Self-Insurance Programs: 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 Company’s total exposure. Management regularly reviews the assumptions used to recognize periodic expenses. Any resulting adjustments to accrued claims are reflected in current operating results.

Advertising and Marketing Costs: The Company expenses advertising costs as incurred. Advertising costs are included in selling, general and administrative expenses and totaled $13.0 million, $14.0 million and $0.8 million for fiscal 2005, 2004 and 2003, respectively.

Income Taxes: Deferred income taxes are accounted for using the liability method and relate principally to cash basis temporary differences and depreciation expense accounted for differently for financial and income tax purposes.

Stock Based Compensation: At October 31, 2005, the Company has a stock-based employee compensation plan, which is described more fully in Note 9. The Company accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based employee compensation cost applicable to employee stock options is reflected in net income, as all options granted had an exercise price at least equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

	Year Ended October 31
	2005			2004			2003
	(In thousands)
Net income, as reported	$	70,638		$	91,428		$	54,061
Deduct: Total stock-based employee compensation expense for employee stock options determined under fair value based method for all awards, net of related tax effects		(45	)		(45	)		(60	)
Pro forma net income	$	70,593		$	91,383		$	54,001
Earnings per share:
Basic-as reported	$	3.53		$	4.62		$	2.78
Basic-pro forma	$	3.53		$	4.62		$	2.78
Diluted-as reported	$	3.51		$	4.57		$	2.75
Diluted-pro forma	$	3.51		$	4.57		$	2.74

Earnings Per Share: Basic earnings per share is based upon the weighted average number of common shares outstanding during the year. Diluted earnings per share includes any dilutive effects of options, warrants, restricted stock and convertible securities.

37

On January 29, 2004, the Board of Directors declared a 3 for 2 stock split to be effected in the form of a 50% stock dividend. This dividend was paid February 29, 2004 to stockholders of record on February 10, 2004. Share and per share data have been adjusted to reflect this stock split. Cash was paid in lieu of fractional shares.

Fair Value of Financial Instruments: The carrying amounts for cash and temporary cash investments approximate their fair values. The carrying amounts of the Company’s borrowings under its credit facilities and long-term debt also approximate the fair values based on current rates for similar debt.

Impact of Recently Issued Accounting Standards: 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.” Generally, the approach in Statement 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company is required to adopt SFAS No. 123(R) in the first quarter of fiscal 2006.

As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using APB 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 to our audited financial statements. 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. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the income tax benefits of such deductions were $966,000 and $3,726,000 for the fiscal years ended October 31, 2005 and 2004, respectively. Also, under the provisions of FAS 123(R), unearned compensation related to unvested restricted stock awards is not recorded. Accordingly, any remaining unearned compensation related to unvested restricted stock awards and the corresponding amount in paid-in capital will no longer be included in stockholders’ equity beginning November 1, 2005.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends Accounting Research Bulletin (“ARB”) No. 43, Chapter 4, to clarify that abnormal amounts of idled 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. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is currently assessing the impact that SFAS No. 151 will have on the results of operations, financial position or cash flows.

2. Hurricane Receivable

The Company’s financial statements for the fourth fiscal quarter and year ended October 31, 2005, reflect a receivable from the Company’s insurance carriers of $14.9 million for property damage, expenses incurred and lost profits resulting from Hurricane Katrina. The Company’s total insurance claim through October 31, 2005, for property damage, expenses incurred and lost profits is $20.0 million, net of the applicable deductible of $2,750,000. The total reduction in operating income of $7.9 million relates to the deductible of $2,750,000 and incurred but unrecognized lost profits and expenses of approximately $5.1 million. The unrecognized lost profits and expenses of $5.1 million were the direct result of the effect of Hurricane Katrina and the Company’s efforts to minimize the potential loss from the hurricane and will be recognized once negotiations with the insurance carriers are complete and the final amounts are determined. The Company intends to seek reimbursement for all of its insured losses, including the unrecognized lost profits and expenses. Negotiations with the Company’s insurance carriers are

38

expected to be completed during 2006. The Company believes the remaining effects of lost production and additional expenses related to Hurricane Katrina that will be incurred during the first fiscal quarter of 2006 will also be substantially covered by the Company’s insurance policies.

3. Inventories

Inventories consisted of the following:

	October 31
	2005		2004
	(In thousands)
Live poultry-broilers and breeders	$	42,662	$	45,318
Feed, eggs and other		10,983		10,081
Processed poultry		19,881		11,024
Processed food		6,905		5,172
Packaging materials		4,282		4,008
	$	84,713	$	75,603

4. Prepaid expenses

Prepaid expenses consisted of the following:

	October 31
	2005		2004
	(In thousands)
Parts and supplies	$	6,801	$	5,698
Current deferred tax assets		1,930		1,460
Other prepaid expenses		2,868		5,919
	$	11,599	$	13,077

5. Accrued expenses

Accrued expenses and claims payable consisted of the following:

	October 31
	2005		2004
	(In thousands)
Income taxes payable	$	12,990	$	0
Accrued bonuses		13,515		11,474
Accrued rebates		3,236		3,387
Workers’ compensation claims		3,711		3,484
Accrued property taxes		2,627		2,306
Accrued wages		4,020		3,201
Accrued vacation		3,199		2,822
Other accrued expenses		4,850		4,355
	$	48,148	$	31,029

6. Long-term Credit Facilities and Debt

     Long-term debt consisted of the following:

39

	October 31
	2005		2004
	(In thousands)
Term loan with an insurance company, accruing interest at 7.05%; due in annual principal installments of $4,000,000, maturing in 2007	$	8,000	$	12,000
Note payable, accruing interest at 5%; due in annual installments of $161,400, including interest, maturing in 2009		597		723
6% Mississippi Business Investment Act bond-capital lease obligation, due November 1, 2012		2,320		2,580
		10,917		15,303
Less current maturities of long-term debt		4,406		4,385
	$	6,511	$	10,918

At October 31, 2005, the Company had a $100.0 million revolving credit agreement with four banks. As of October 31, 2005, all of the credit was available. 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 and the term loan agreements include requirements for maintenance of minimum consolidated net working capital, tangible net worth, debt to total capitalization and current ratio. The agreement also establishes limits on dividends, assets that can be pledged and capital expenditures. As of December 22, 2005, all of the credit under the new revolver was available.

The aggregate annual maturities of long-term debt at October 31, 2005 are as follows (in thousands):

Fiscal Year	Amount
2006	$	4,406
2007		4,433
2008		455
2009		482
2010		381
Thereafter		760
	$	10,917

7. Income Taxes

     Income tax expense (benefit) consisted of the following:

	Years Ended October 31
	2005			2004		2003
	(In thousands)
Current:
Federal	$	41,453		$	49,250	$	29,940
State		5,505			8,090		5,080
		46,958			57,340		35,020
Deferred:
Federal		(2,705	)		430		(800	)
State		(410	)		70		(120	)
		(3,115	)		500		(920	)
	$	43,843		$	57,840	$	34,100

     Significant components of the Company’s deferred tax assets and liabilities were as follows:

	October 31
	2005		2004
	(In thousands)
Deferred tax liabilities:
Property, plant and equipment	$	15,675	$	17,977
Prepaid and other assets		495		1,108
Total deferred tax liabilities		16,170		19,085

40

	October 31
	2005		2004
	(In thousands)
Deferred tax assets:
Accrued expenses and accounts receivable		4,395		4,195
Net deferred tax liabilities	$	11,775	$	14,890
Current deferred tax assets (included in prepaid expenses)	$	1,930	$	1,460
Long-term deferred tax liabilities		13,705		16,350
Net deferred tax liabilities	$	11,775	$	14,890

     The differences between the consolidated effective income tax rate and the federal statutory rate of 35.0%
are as follows:

	Years Ended October 31
	2005		2004		2003
	(In thousands)
Income taxes at statutory rate	$	40,068	$	52,244	$	30,856
State income taxes		3,312		5,584		3,224
Other, net		463		12		20
Income tax expense	$	43,843	$	57,840	$	34,100

8. Employee Benefit Plans

The Company has an Employee Stock Ownership Plan (“ESOP”) covering substantially all employees. Contributions to the ESOP are determined at the discretion of the Company’s Board of Directors. Total contributions to the ESOP were $5,500,000, $7,000,000 and $4,000,000 in fiscal 2005, 2004 and 2003, respectively.

The Company has a 401(k) Plan which covers substantially all employees after one year of service. Participants in the Plan may contribute up to the maximum allowed by IRS regulations. The Company matches 100% of employee contributions to the 401(k) Plan up to 3% of each employee’s compensation and 50% of employee contributions between 3% and 5% of each employee’s compensation. The Company’s contributions to the 401(k) Plan totaled $2,666,000 in fiscal 2005, $1,803,000 in fiscal 2004 and $1,551,000 in fiscal 2003.

9. Stock Compensation Plans

The Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under FASB Statement No. 123, “Accounting for Stock-Based Compensation,” requires use of option valuation models that were not developed for use in valuing employee stock options.

Under the Company’s Stock Option Plan, 2,250,000 shares of Common Stock were reserved for grant to key management personnel. Options outstanding at October 31, 2005 were granted in fiscal 2002, have ten-year terms and vest over four years beginning one year after the date of grant. The Company did not grant any options during fiscal 2005, 2004 and 2003. The plan has been superceded by the Sanderson Farms, Inc. and Affiliates Stock Incentive Plan described below and no further options may be issued under the Stock Option Plan.

Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model.

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A summary of the Company’s stock option activity and related information is as follows:

				Weighted-Average
	Shares			Exercise Price
Outstanding at October 31, 2002		1,082,604		$	9.61
Granted		0			0.00
Exercised		(272,775	)		8.57
Forfeited		(10,125	)		12.37
Outstanding at October 31, 2003		799,704			14.41
Granted		0			0.00
Exercised		(440,078	)		9.75
Forfeited		(2,250	)		12.37
Outstanding at October 31, 2004		357,376			11.56
Granted		0			0.00
Exercised		(102,332	)		11.27
Forfeited		(33,501	)		12.22
Outstanding at October 31, 2005		221,543		$	11.66

The exercise price of the options outstanding as of October 31, 2005, ranged from $7.47 to $12.37 per share. At October 31, 2005, the weighted average remaining contractual life of the options outstanding was 7 years and 150,336 options were exercisable.

In fiscal 2000, the Company granted 211,507 “phantom shares” to certain key management personnel. Upon exercise of a phantom share, the holder will receive a cash payment or an equivalent number of shares of the Company’s Common Stock, at the Company’s option, equal to the excess of the fair market value of the Company’s Common Stock at the time of exercise over the phantom share award value of $4.98 per share. The phantom shares have a ten-year term and vest over four years beginning one year after the date of grant. Compensation expense of $84,000, $1,567,000 and $1,942,000 for the phantom share plan is included in selling, general and administrative expense in the accompanying consolidated statement of income for fiscal 2005, 2004 and 2003, respectively.

A summary of the Company’s phantom share activity and related information is as follows:

				Exercise
	Shares			Price
Outstanding at October 31, 2002		211,500		$	4.98
Granted		0			0.00
Forfeited		0			0.00
Exercised		(141,750	)		4.98
Outstanding at October 31, 2003		69,750			4.98
Granted		0			0.00
Forfeited		0			0.00
Exercised		(63,000	)		4.98
Outstanding at October 31, 2004		6,750			4.98
Granted		0			0.00
Forfeited		0			0.00
Exercised		(6,750	)		4.98
Outstanding at October 31, 2005		0		$	0.00

On February 17, 2005, the shareholders of the Company approved the Sanderson Farms, Inc. and Affiliates Stock Incentive Plan (the “Plan”). The Plan allows the Company’s board of directors to grant certain incentive awards including stock options, stock appreciation rights, restricted stock, and other similar awards. The Company may award up to 2,250,000 shares under the Plan. Incentive awards granted under the Plan are accounted for in accordance with APB Opinion No. 25, “Accounting for Stock issued to Employees” and related interpretations.

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Pursuant to the Plan, on February 23, 2005, the Company’s board of directors approved agreements for the issuance of restricted stock to directors, executive officers and other key employees as designated by the Company’s board of directors. Restricted stock granted to non-employee directors vests three years from the date of grant and all other restricted stock granted at that time pursuant to the Plan vests ten years from the date of grant. The vesting schedule is accelerated upon death, disability or retirement of the participant or upon a change in control, as defined. Restricted stock grants are valued based upon the closing market price of the Company’s Common Stock on the date of grant. Restricted stock grants are recorded as unearned compensation and are recognized as compensation expense over the vesting period. During the quarter ended April 30, 2005, the Company issued a total of 354,000 shares of restricted stock valued at $44.56 per share. During fiscal 2005, 11,000 shares granted on February 23, 2005 were forfeited. Compensation expense related to restricted stock grants totaled $1,744,000 during fiscal 2005.

Also on February 23, 2005 and pursuant to the Plan, the Company’s board of directors approved Management Share Purchase Plan agreements (the “Purchase Plan”) that authorized the issuance of shares of restricted stock to the Company’s directors, executive officers and other key employees as designated by the Company’s board of directors. Pursuant to the Purchase Plan, non-employee directors may elect to receive up to 100% of their annual retainer and meeting fees in the form of restricted stock. Other participants may elect to receive up to 15% of their salary and up to 75% of any bonus earned in the form of restricted stock. The purchase price of the restricted stock is the closing market price of the Company’s Common Stock on the date of purchase. The Company makes matching contributions of 25% of the restricted shares purchased by participants. Restricted stock issued pursuant to the Purchase Plan vests after three years or immediately upon death, disability, retirement or change in control, as defined. If a participant’s employment is terminated for any other reason prior to the three-year vesting period, the participant forfeits the matching contribution and the Company may, at its option, repurchase restricted stock purchased by the participant at the price paid by the participant. Matching contributions are recorded as unearned compensation and are recognized as compensation expense over the vesting period. During fiscal 2005, the participants purchased a total of 7,497 shares of restricted stock pursuant to the Purchase Plan valued at $41.13 per share and the Company issued 1,832 matching shares valued at $41.11 per share. Compensation expense related to the Company’s matching contribution totaled approximately $8,000 in fiscal 2005.

10. Shareholder Rights Agreement

On April 22, 1999, the Company adopted a shareholder rights agreement (the “Agreement”) with similar terms as the previous one. Under the terms of the Agreement a purchase right (“right”) was declared as a dividend for each share of the Company’s Common Stock outstanding on May 4, 1999. The rights do not become exercisable and certificates for the rights will not be issued until ten business days after a person or group acquires or announces a tender offer for the beneficial ownership of 20% or more of the Company’s Common Stock. Special rules set forth in the Agreement apply to determine beneficial ownership for members of the Sanderson family. Under these rules, such a member will not be considered to beneficially own certain shares of Common Stock, the economic benefit of which is received by any member of the Sanderson family, and certain shares of Common Stock acquired pursuant to employee benefit plans of the Company.

The exercise price of a right has been established at $75. Once exercisable, each right would entitle the holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $100 per share. The rights may be redeemed by the Board of Directors at $0.01 per right prior to an acquisition, through open market purchases, a tender offer or otherwise, of the beneficial ownership of 20% or more of the Company’s Common Stock. The rights expire on May 4, 2009.

11. Other Matters

     The Company has vehicle and equipment leases that expire at various dates through fiscal 2011. Rental expense under these leases totaled $4.9 million, $4.7 million and $3.6 million for fiscal 2005, 2004 and 2003, respectively. The minimum lease payments of obligations under non-cancelable operating leases at October 31, 2004 were as follows:

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Fiscal Year	Amount
2006	$5.6 million
2007	5.0 million
2008	3.5 million
2009	3.0 million
2010	1.8 million
Thereafter	.1 million
	$	19.0

     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 Company’s 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 Company’s motion to dismiss was denied, the court’s 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 all 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 Company’s 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. The first of the six trials is currently set for September 18, 2006.

     On September 26, 2000, three current and former contract growers filed suit against the Company in the Chancery Court of Lawrence County, Mississippi. The plaintiffs filed suit on behalf of “all Mississippi residents to whom, between, on or about November 1981 and the present, the Company induced into growing chickens for it and

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paid compensation under the so-called ‘ranking system’.” Plaintiffs allege that the Company “has defrauded plaintiffs by unilaterally imposing and utilizing the so-called ‘ranking system’ which wrongfully places each grower into a competitive posture against other growers and arbitrarily penalizes each less successful grower based upon criteria which were never revealed, explained or discussed with plaintiffs.” Plaintiffs further allege that they are required to accept chicks that are genetically different and with varying degrees of healthiness, and feed of dissimilar quantity and quality. Finally, plaintiffs allege that they are ranked against each other although they possess dissimilar facilities, equipment and technology. Plaintiffs seek an unspecified amount in compensatory and punitive damages, as well as varying forms of equitable relief.

     The Company is vigorously defending and will continue to vigorously defend this action. On November 22, 2002, the Court denied the Company’s motions to compel arbitration, challenging the jurisdiction of the Chancery Court of Lawrence County, Mississippi, and seeking to have the case dismissed pursuant to rule 5(c) of the Mississippi Rules of Civil Procedure. The Company then filed its motion for interlocutory appeal on these issues with the Mississippi Supreme Court. On December 6, 2002, the Mississippi Supreme Court agreed to hear this motion and stayed the action in the Chancery Court pending disposition of this motion. The Company’s motion for interlocutory appeal was granted and this matter is pending before the Mississippi Supreme Court. The Supreme Court granted the Company’s request that this case be consolidated with a second grower suit discussed below. Both this matter and the matter discussed below were decided by the court on October 6, 2005 with a decision in favor of the Company. The plaintiffs have indicated they plan to request a rehearing before the court and have until January 18, 2006 to file such a request.

     On August 2, 2002, three contract egg producers filed suit against the Company in the Chancery Court of Jefferson Davis County, Mississippi. The Plaintiffs filed suit on behalf of “all Mississippi residents who, between June 1993 and the present, [the Company] fraudulently and negligently induced into housing, feeding and providing water for [the Company’s] breeder flocks and gathering, grading, packaging and storing the hatch eggs generated by said flocks and who have been compensated under the payment method established by the [Company].” Plaintiffs alleged that the Company “has defrauded Plaintiffs by unilaterally imposing and utilizing a method of payment which wrongfully and arbitrarily penalizes each grower based upon criteria which are under the control of the [Company] and which were never revealed, explained or discussed with each Plaintiff.” Plaintiffs allege that they were required to accept breeder hens and roosters which are genetically different, with varying degrees of healthiness, and feed of dissimilar quantity and quality. Plaintiffs further allege contamination of and damage to their real property. Plaintiffs alleged that they were “fraudulently and negligently induced into housing, feeding and providing water for the Company’s breeder flocks and gathering, grading, packaging and storing the hatch eggs produced from said flocks” for the Company. Plaintiffs seek unspecified amount of compensatory and punitive damages, as well as various forms of equitable relief.

     On September 5, 2002, the Company filed its Motion to Dismiss and/or Transfer Jurisdiction and/or to Compel Arbitration and/or for Change of Venue. A hearing of this motion was completed on November 18, 2003. Prior to completion of the hearing, the Company filed a request with the American Arbitration Association (“AAA”) to arbitrate the claims made in this lawsuit. On June 7, 2004, the Chancery Court of Jefferson Davis County, Mississippi entered an Order denying all of the relief requested by the Company in its motion dated September 5, 2002. On June 29, 2004, the Company filed a Notice of Appeal and/or, in the Alternative, Petition to Appeal from Interlocutory Order and Motion for Stay Pursuant to M.R.A.P.5(c) with the Mississippi Supreme Court, requesting appellate review of the Chancery Court’s Order. On August 11, 2004, the Mississippi Supreme Court entered its Order accepting jurisdiction under the Notice of Appeal portion of the Company’s June 29, 2004 filing, but dismissed the Alternative Petition for Interlocutory Appeal portion of the same filing as moot. The court also agreed to consolidate this case with the broiler grower lawsuit described above. The Mississippi Supreme Court continued the stay previously entered, holding in abeyance the trial court proceedings pending a ruling by it on the consolidated appeals of both grower lawsuits. On October 6, 2005, the court decided this matter, together with the grower suit discussed above, in favor of the Company. The plaintiffs have indicated they plan to request a rehearing before the court and have until January 18, 2006 to file such a request.

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     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 Company’s consolidated results of operation or financial position.

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QUARTERLY FINANCIAL DATA

	Fiscal Year 2005
	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter(1)
	(In thousands, except per share data)
	(Unaudited)
Net sales	$	233,290	$	259,176	$	264,650	$	249,069
Operating income		16,508		42,812		38,940		15,224
Net income		10,041		26,520		24,022		10,055
Diluted earnings per share	$	.50	$	1.32	$	1.19	$	.50

	Fiscal Year 2004
	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
	(In thousands, except per share data)
	(Unaudited)
Net sales	$	226,441	$	272,710	$	293,923	$	259,223
Operating income		31,383		54,972		55,775		8,024
Net income		18,986		33,437		33,944		5,061
Diluted earnings per share	$	.95	$	1.67	$	1.69	$	.25

⁽¹⁾ During the fourth quarter of fiscal 2005, the Company was negatively impacted by Hurricane Katrina and had an estimated reduction in its operating income during the fourth quarter of $7.9 million related to the storm.

Sanderson Farms, Inc. and Subsidiaries

Valuation and Qualifying Accounts

Schedule II

COL. A	COL. B		COL. C		COL. D	COL. E		COL. F
	Balance at		Charged to		Charged to			Balance at
	Beginning		Costs and		Other	Deductions		End of
Classification	of Period		Expenses		Accounts	Describe(1)		Period
	(In Thousands)
Year ended October 31, 2005
Deducted from accounts receivable:
Allowance for doubtful accounts
Totals	$	1,555	$	1,063		$	1,869	$	749
Year ended October 31, 2004
Deducted from accounts receivable:
Allowance for doubtful accounts
Totals	$	1,390	$	165		$	0	$	1,555
Year ended October 31, 2003
Deducted from accounts receivable:
Allowance for doubtful accounts
Totals	$	663	$	727		$	0	$	1,390

(1) Uncollectible accounts written off, net of recoveries

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

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     Not applicable.

Item 9A. Controls and Procedures.
Disclosure Controls

     The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

     As of October 31, 2005 an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of October 31, 2005. There have been no changes in the Company’s internal control over financial reporting during the fourth quarter ended October 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

     The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s management has assessed the effectiveness of the Company’s internal control over financial reporting as of October 31, 2005. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on our assessment we have concluded that, as of October 31, 2005, the Company’s internal control over financial reporting is effective based on those criteria. Our independent registered public accounting firm, Ernst & Young LLP, has provided an attestation report on management’s assessment of the Company’s internal control over financial reporting as of October 31, 2005.

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

The Board of Directors and Stockholders
Sanderson Farms, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Sanderson Farms, Inc. maintained effective internal control over financial reporting as of October 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Sanderson Farms, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such

48

other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Sanderson Farms, Inc. maintained effective internal control over financial reporting as of October 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Sanderson Farms, Inc. maintained, in all material respects, effective internal control over financial reporting as of October 31, 2005, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Sanderson Farms, Inc. and subsidiaries as of October 31, 2005 and 2004, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended October 31, 2005 of Sanderson Farms, Inc. and subsidiaries and our report dated December 22, 2005 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

New Orleans, Louisiana
December 22, 2005

Item 9B. Other Information.

     Not applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant.

     As permitted by General Instruction G(3) to Form 10-K, reference is made to the information concerning the Directors of the Registrant and the nominees for election as Directors appearing in the Registrant’s definitive proxy statement filed or to be filed with the Commission pursuant to Rule 14a-6(b). Such information is incorporated herein by reference to the definitive proxy statement.

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     Information concerning the executive officers of the Registrant is set forth in Item 4A of Part I of this Annual Report.

     The Registrant also incorporates by reference, as permitted by General Instruction G(3) to Form 10-K, information appearing in its definitive proxy statement filed or to be filed with the Commission pursuant to Rule 14a-6(b) related to the filing of reports under Section 16 of the Securities Exchange Act of 1934.

     The Registrant has a standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, whose members are John H. Baker, III, Phil K. Livingston, Gail J. Pittman, Charles W. Ritter, Jr. (Chairman) and Donald W. Zacharias. All members of the audit committee are independent directors under the listing standards of the National Association of Securities Dealers. The Registrant’s Board of Directors has determined that Phil K. Livingston is an audit committee financial expert.

     The Registrant has adopted a code of ethics that applies to its senior financial personnel, including its chief executive officer, chief financial officer and chief accounting officer. The Registrant will provide a copy of the code of ethics free of charge to any person upon request to:

Sanderson Farms, Inc.
P.O. Box 988
Laurel, Mississippi 39440
Attn.: Chief Financial Officer

Requests can also be made by phone at (601) 649-4030.

Item 11. Executive Compensation.

     As permitted by General Instruction G(3) to Form 10-K, reference is made to the information concerning remuneration of Directors and executive officers of the Registrant appearing in the Registrant’s definitive proxy statement filed or to be filed with the Commission pursuant to Rule 14a-6(b). Such information is incorporated herein by reference to the definitive proxy statement.

     Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

     As permitted by General Instruction G(3) to Form 10-K, reference is made to the information concerning beneficial ownership of the Registrant’s Common Stock, which is the only class of the Registrant’s voting securities, appearing in the Registrant’s definitive proxy statement filed or to be filed with the Commission pursuant to Rule 14a-6(b). Such information is incorporated herein by reference to the definitive proxy statement.

     The following table provides information as of October 31, 2005 with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Registrant are authorized for issuance. The Registrant has no equity compensation plan not approved by security holders. All outstanding options to purchase the Company’s common stock were issued under the Registrant’s Stock Option Plan approved by shareholders on February 28, 2002. That plan has been superceded by the Registrant’s Stock Incentive Plan approved by shareholders on February 17, 2005. No further options or other awards may be granted under the Stock Option Plan. There are 2,250,000 shares of common stock authorized for issuance under the Stock Incentive Plan.

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					(c) Number of
					securities remaining
	(a) Number of				available for future
	securities to be issued		(b) Weighted-average		issuance under equity
	upon exercise of		exercise price of		compensation plans
	outstanding options,		outstanding options,		(excluding securities
	warrants and		warrants and		reflected in column
Plan category(1)	rights(2)		rights(2)		(a)(3)
Equity compensation plans approved by security holders		221,543	$	11.66		818,547
Equity compensation plans not approved by security holders		0		0		0
Total		221,543	$	11.66		818,547

(1)	The table above does not include information concerning the Registrant’s Phantom Stock Agreements dated April 21, 2000 with certain of its executive officers and key employees. These agreements permit the respective holders to claim a cash award from the Registrant at specified times prior to April 21, 2010, equal to a number of shares selected by the holder, but not exceeding in the aggregate the number of shares specified in the agreement, multiplied by the difference between the market value of a share of the Registrant’s common stock at that time and $4.9817. The Company has the option to issue shares of its common stock in lieu of the cash payable to a phantom stock holder upon the exercise of such holder’s phantom stock. Because the value of a share of phantom stock upon conversion depends on the value of the Registrant’s common stock on the conversion date, the number of shares of the Registrant’s common stock that would be issuable upon conversion of the outstanding phantom stock in lieu of a cash payment, should the Registrant exercise its option to issue shares in lieu of paying cash, cannot be determined. Information concerning the amount of the Registrant’s phantom stock awards is contained in the Registrant’s revised definitive proxy statement on Schedule 14A filed on January 28, 2002.
(2)	These columns do not reflect the 354,000 shares of restricted stock issued to participants in the Stock Incentive Plan in fiscal 2005, the 9,329 shares of restricted stock purchased by or issued to participants under the management stock purchase plan provisions of the Stock Incentive Plan or the purchase prices therefor.
(3)	Represents shares available for issuance under the Stock Incentive Plan.

Item 13. Certain Relationships and Related Transactions.

     As permitted by General Instruction G(3) to Form 10-K, information, if any, required to be reported by Item 13 of Form 10-K, with respect to transactions with management and others, certain business relationships, indebtedness of management, and transactions with promoters, is set forth in the Registrant’s definitive proxy statement filed or to be filed with the Commission pursuant to Rule 14a-6(b). Such information, if any, is incorporated herein by reference to the definitive proxy statement.

Item 14. Principal Accountant Fees and Services.

     As permitted by General Instruction G(3) to Form 10-K, information required to be reported by Item 14 of Form 10-K is set forth in the Registrant’s definitive proxy statement filed or to be filed with the Commission pursuant to Rule 14a-6(b). That information is incorporated by reference into this Form 10-K.

PART IV

     Item 15. Exhibits and Financial Statement Schedules.

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(a)1. FINANCIAL STATEMENTS:

The following consolidated financial statements of the Registrant are included in Item 8:

Consolidated Balance Sheets — October 31, 2005 and 2004

Consolidated Statements of Income — Years ended October 31, 2005, 2004 and 2003

Consolidated Statements of Stockholders’ Equity — Years ended October 31, 2005, 2004 and 2003

Consolidated Statements of Cash Flows — Years ended October 31, 2005, 2004 and 2003

Notes to Consolidated Financial Statements — October 31, 2005

(a)2. FINANCIAL STATEMENT SCHEDULES:

The following consolidated financial statement schedules of the Registrant are included in Item 8:

Schedule II — Valuation and Qualifying Accounts

     All other schedules are omitted as they are not required, are not applicable or the required information is set forth in the Financial Statements or notes thereto.

(a) 3. EXHIBITS:

     The following exhibits are filed with this Annual Report or are incorporated herein by reference:

Exhibit
Number		Description
	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.)
	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.)
	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.)
	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.)
	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.)
	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.)
	3.7	By-Laws of the Registrant, amended and restated as of December 2, 2004 (Incorporated by reference to Exhibit 3 filed with the Registrant’s Current Report on Form 8-K on December 8, 2004.)

52

Exhibit
Number		Description
	10.1	Contract dated July 31, 1964 between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)
	10.2	Contract Amendment dated December 1, 1970 between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D-1 filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)
	10.3	Contract Amendment dated June 11, 1985 between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D-2 filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)
	10.4	Contract Amendment dated October 7, 1986 between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D-3 filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)
	10.5 + *	Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates, amended and restated effective November 1, 1997.
	10.6 + *	Amendment One dated October 22, 2002 to the Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates.
	10.7 + *	Amendment Two dated December 2, 2003 to the Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates.
	10.8 + *	Amendment Three dated February 11, 2004 to the Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates.
	10.9 + *	Amendment Four dated January 1, 2003 to the Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates.
	10.10 + *	Amendment Five dated March 28, 2005 to the Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates.
	10.11 +	Sanderson Farms, Inc. and Affiliates Stock Option Plan (Amended and Restated as of February 28, 2002). (Incorporated by reference to Exhibit 4.8 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)
	10.12 +	Form of Nonstatutory Stock Option Agreement. (Incorporated by reference to Exhibit 4.9 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)
	10.13 +	Sanderson Farms, Inc. Bonus Award Program effective November 1, 2004. (Incorporated by reference to Exhibit 10 to the Registrant’s Current Report on Form 8-K filed December 8, 2004.)
	10.14 +	Sanderson Farms, Inc. and Affiliates Stock Incentive Plan. (Incorporated by reference to Exhibit B to the Registrant’s Definitive Proxy Statement filed on January 14, 2005 for its Annual Meeting held February 17, 2005.)
	10.15 +	Form of Restricted Stock Agreement between the Registrant and its non-employee directors who are granted restricted stock. (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K on March 1, 2005.)
	10.16 +	Form of Restricted Stock Agreement between Registrant and its officers and employees who are granted restricted stock. (Incorporated by reference to Exhibit 10.2 filed with the Registrant’s Current Report on

53

Exhibit
Number		Description
		Form 8-K on March 1, 2005.)
	10.17 +	Form of Agreement between Registrant and its non-employee directors who participate in its management share purchase plan, as amended. (Incorporated by reference to Exhibit 10.3 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2005.)
	10.18 +	Form of Agreement between Registrant and its officers and employees who participate in its management share purchase plan, as amended. (Incorporated by reference to Exhibit 10.4 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2005.)
	10.19 +	Form of Restricted Stock Agreement between Registrant and its officers and employees who are granted restricted stock. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed December 2, 2005.)
	10.20 +	Form of Performance Share Agreement between Registrant and its officers and employees who are granted performance shares. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed December 2, 2005.)
	10.21	Memorandum of Agreement dated June 13, 1989, between Pike County, Mississippi and the Registrant. (Incorporated by reference to Exhibit 10-L filed with the Registrant’s Annual Report on Form 10-K for the year ended October 31, 1990.)
	10.22	Wastewater Treatment Agreement between the City of Magnolia, Mississippi and the Registrant dated August 19, 1991. (Incorporated by reference to Exhibit 10-M filed with the Registrant’s Annual Report on Form 10-K for the year ended October 31, 1991.)
	10.23	Memorandum of Agreement and Purchase Option between Pike County, Mississippi and the Registrant dated May 1991. (Incorporated by reference to Exhibit 10-N filed with the Registrant’s Annual Report on Form 10-K for the year ended October 31, 1991.)
	10.24	Lease Agreement between Pike County, Mississippi and the Registrant dated as of November 1, 1992. (Incorporated by reference to Exhibit 10-M filed with the Registrant’s Annual Report on Form 10-K for the year ended October 31, 1993.)
	10.25	Credit Agreement dated as of July 31, 1996 among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank, Atlanta; Deposit Guaranty National Bank; Caisse National de Credit Agricole, Chicago Branch; and Trustmark National Bank. (Incorporated by reference to Exhibit 10-N to Amendment No. 1 to the Quarterly Report of the Registrant for the quarter ended July 31, 1996.)
	10.26	First Amendment to Credit Agreement, dated as of October 23, 1997, by and among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank; Deposit Guaranty National Bank; Caisse Nationale De Credit Agricole, Chicago Branch; and Trustmark National Bank. (Incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.)
	10.27	Second Amendment to Credit Agreement, dated as of July 23, 1998, by and among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank; Deposit Guaranty National Bank; Caisse Nationale De Credit Agricole, Chicago Branch; and Trustmark National Bank. (Incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.)
	10.28	Third Amendment to Credit Agreement, dated as of July 29, 1999, by and among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank; First American National Bank, D/B/A Deposit Guaranty National Bank; Caisse Nationale De Credit Agricole, Chicago

54

Exhibit
Number		Description
		Branch; and Trustmark National Bank. (Incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.)
	10.29	Fourth Amendment to Credit Agreement, dated as of March 17, 2000, by and among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank; Credit Agricole Indosuez, Chicago Branch; and Trustmark National Bank. (Incorporated by reference to Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.)
	10.30	Fifth Amendment to Credit Agreement, dated as of February 16, 2001, by and among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank; Credit Agricole Indosuez, Chicago Branch; and Trustmark National Bank. (Incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.)
	10.31	Sixth Amendment to Credit Agreement dated as of July 2, 2001, by and among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank; AmSouth Bank; Credit Agricole Indosuez, Chicago Branch; and Trustmark National Bank. (Incorporated by reference to Exhibit 10d to the Quarterly Report of the Registrant for the quarter ended January 31, 2002.)
	10.32	Seventh Amendment to Credit Agreement dated as of July 29, 2002, by and among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank; AmSouth Bank; and Trustmark National Bank. (Incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Quarterly Report of the Registrant for the quarter ended July 31, 2002.)
	10.33	Eighth Amendment to Credit Agreement dated as of July 31, 2003, by and among Sanderson Farms, Inc.; Harris Trust and Savings Bank, individually and as Agent; SunTrust Bank; AmSouth Bank; and Trustmark National Bank. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2003.)
	10.34	Ninth Amendment dated May 18, 2004 to Credit Agreement dated as of July 31, 1996, as amended, among Sanderson Farms, Inc., Harris Trust and Savings Bank, as agent for the Banks, and Harris Trust and Savings Bank, Sun Trust Bank, AmSouth Bank and Trustmark National Bank. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2004.)
	10.35	Agreement dated as of April 22, 1999 between Sanderson Farms, Inc. and Chase Mellon Shareholder Services, L.L.C. (Incorporated by reference to Exhibit 4.1 filed with the Registrant’s Current Report on Form 8-K dated April 22, 1999.)
	10.36	Lease Agreement dated as of December 1, 2004 between Moultrie-Colquitt County Development Authority, as Lessor, and Sanderson Farms, Inc. (Processing Division) as Lessee. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2005.)
	10.37	Bond Purchase Loan Agreement between Moultrie-Colquitt County Development Authority, as Issuer, and Sanderson Farms, Inc. (Processing Division), as Purchaser. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2005.)
	10.38	Credit Agreement dated November 17, 2005 among Sanderson Farms, Inc. and Harris N.A., Individually and as Agent for the Banks defined therein. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 23, 2005.)
	10.39	Guaranty Agreement dated November 17, 2005 of Sanderson Farms, Inc. (Foods Division), Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division). (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed November 23, 2005.)

55

Exhibit
Number		Description
	10.40	Intercreditor Agreement dated as of November 17, 2005 among The Lincoln National Life Insurance Company, Harris N.A., SunTrust Bank, AmSouth Bank, U.S. Bank National Association, Regions Bank, and Trustmark National Bank. (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed November 23, 2005.)
	21	List of Subsidiaries of the Registrant. (Incorporated by reference to Exhibit 21 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.)
	23*	Consent of Independent Registered Public Accounting Firm.
	31.1*	Certification of Chief Executive Officer.
	31.2*	Certification of Chief Financial Officer.
	32.1**	Section 1350 Certification.
	32.2**	Section 1350 Certification.

*	Filed herewith.
**	Furnished herewith.
+	Management contract or compensatory plan or arrangement.

(b) Agreements Available Upon Request by the Commission.

The Registrant’s credit agreement with the banks for which Harris Trust and Savings Bank acts as agent is filed or incorporated by reference as an exhibit to this report. The Registrant is a party to various other agreements defining the rights of holders of long-term debt of the Registrant, but, of those other agreements, no single agreement authorizes securities in an amount which exceeds 10% of the total assets of the Company. Upon request of the Commission, the Registrant will furnish a copy of any such agreement to the Commission. Accordingly, such agreements are omitted as exhibits as permitted by Item 601(b)(4)(iii) of Regulation S-K.

QUALIFICATION BY REFERENCE

Any statement contained in this Annual Report concerning the contents of any contract or other document filed as an exhibit to this Annual Report or incorporated herein by reference is not necessarily complete, and in each instance reference is made to the copy of the document filed.

56

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

SANDERSON FARMS, INC.
By:	/s/ Joe F. Sanderson, Jr.
	Chairman of the Board and Chief Executive Officer

Date: December 29, 2005

57

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and as of the dates indicated.

/s/ Joe F. Sanderson, Jr.	12/29/05	/s/ John H. Baker, III	12/29/05
Joe F. Sanderson, Jr.,		John H. Baker, III,
Chairman of the Board and Chief Executive Officer		Director
(Principal Executive Officer)
/s/ Beverly Wade Hogan	12/29/05	/s/Charles W. Ritter, Jr.	12/29/05
Beverly Wade Hogan,		Charles W. Ritter, Jr.,
Director		Director
/s/ Gail Jones Pittman	12/29/05	/s/ Rowan H. Taylor	12/29/05
Gail Jones Pittman,		Rowan H. Taylor,
Director		Director
/s/ Donald W. Zacharias	12/29/05	/s/ Robert Buck Sanderson	12/29/05
Donald W. Zacharias,		Robert Buck Sanderson,
Director		Director
/s/ Phil K. Livingston	12/29/05	/s/ Lampkin Butts	12/29/05
Phil K. Livingston,		Lampkin Butts, Director,
Director		President and Chief Operating Officer
/s/ D. Michael Cockrell	12/29/05	/s/ James A. Grimes	12/29/05
D. Michael Cockrell,		James A. Grimes, Secretary
Director, Treasurer and Chief Financial Officer		and Chief Accounting Officer
(Principal Financial Officer)		(Principal Accounting Officer)

58

EXHIBITS:

     The following exhibits are filed with this Annual Report or are incorporated herein by reference:

Exhibit
Number		Description
	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.)
	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.)
	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.)
	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.)
	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.)
	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.)
	3.7	By-Laws of the Registrant, amended and restated as of December 2, 2004 (Incorporated by reference to Exhibit 3 filed with the Registrant’s Current Report on Form 8-K on December 8, 2004.)
	10.1	Contract dated July 31, 1964 between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)
	10.2	Contract Amendment dated December 1, 1970 between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D-1 filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)
	10.3	Contract Amendment dated June 11, 1985 between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D-2 filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)
	10.4	Contract Amendment dated October 7, 1986 between the Registrant and the City of Laurel, Mississippi. (Incorporated by reference to Exhibit 10-D-3 filed with the registration statement on Form S-1 filed by the Registrant on April 3, 1987, Registration No. 33-13141.)
	10.5 + *	Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates, amended and restated effective November 1, 1997.
	10.6 + *	Amendment One dated October 22, 2002 to the Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates.
	10.7 + *	Amendment Two dated December 2, 2003 to the Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates.

59

Exhibit
Number		Description
	10.8 + *	Amendment Three dated February 11, 2004 to the Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates.
	10.9 + *	Amendment Four dated January 1, 2003 to the Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates.
	10.10 + *	Amendment Five dated March 28, 2005 to the Employee Stock Ownership Plan and Trust Agreement of Sanderson Farms, Inc. and Affiliates.
	10.11 +	Sanderson Farms, Inc. and Affiliates Stock Option Plan (Amended and Restated as of February 28, 2002). (Incorporated by reference to Exhibit 4.8 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)
	10.12 +	Form of Nonstatutory Stock Option Agreement. (Incorporated by reference to Exhibit 4.9 filed with the registration statement on Form S-8 filed by the Registrant on July 15, 2002, Registration No. 333-92412.)
	10.13 +	Sanderson Farms, Inc. Bonus Award Program effective November 1, 2004. (Incorporated by reference to Exhibit 10 to the Registrant’s Current Report on Form 8-K filed December 8, 2004.)
	10.14 +	Sanderson Farms, Inc. and Affiliates Stock Incentive Plan. (Incorporated by reference to Exhibit B to the Registrant’s Definitive Proxy Statement filed on January 14, 2005 for its Annual Meeting held February 17, 2005.)
	10.15 +	Form of Restricted Stock Agreement between the Registrant and its non-employee directors who are granted restricted stock. (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K on March 1, 2005.)
	10.16 +	Form of Restricted Stock Agreement between Registrant and its officers and employees who are granted restricted stock. (Incorporated by reference to Exhibit 10.2 filed with the Registrant’s Current Report on Form 8-K on March 1, 2005.)
	10.17 +	Form of Agreement between Registrant and its non-employee directors who participate in its management share purchase plan, as amended. (Incorporated by reference to Exhibit 10.3 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2005.)
	10.18 +	Form of Agreement between Registrant and its officers and employees who participate in its management share purchase plan, as amended. (Incorporated by reference to Exhibit 10.4 filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2005.)
	10.19 +	Form of Restricted Stock Agreement between Registrant and its officers and employees who are granted restricted stock. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed December 2, 2005.)
	10.20 +	Form of Performance Share Agreement between Registrant and its officers and employees who are granted performance shares. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed December 2, 2005.)
	10.21	Memorandum of Agreement dated June 13, 1989, between Pike County, Mississippi and the Registrant. (Incorporated by reference to Exhibit 10-L filed with the Registrant’s Annual Report on Form 10-K for the year ended October 31, 1990.)
	10.22	Wastewater Treatment Agreement between the City of Magnolia, Mississippi and the Registrant dated August 19, 1991. (Incorporated by reference to Exhibit 10-M filed with the Registrant’s Annual Report

60

Exhibit
Number		Description
		on Form 10-K for the year ended October 31, 1991.)
	10.23	Memorandum of Agreement and Purchase Option between Pike County, Mississippi and the Registrant dated May 1991. (Incorporated by reference to Exhibit 10-N filed with the Registrant’s Annual Report on Form 10-K for the year ended October 31, 1991.)
	10.24	Lease Agreement between Pike County, Mississippi and the Registrant dated as of November 1, 1992. (Incorporated by reference to Exhibit 10-M filed with the Registrant’s Annual Report on Form 10-K for the year ended October 31, 1993.)
	10.25	Credit Agreement dated as of July 31, 1996 among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank, Atlanta; Deposit Guaranty National Bank; Caisse National de Credit Agricole, Chicago Branch; and Trustmark National Bank. (Incorporated by reference to Exhibit 10-N to Amendment No. 1 to the Quarterly Report of the Registrant for the quarter ended July 31, 1996.)
	10.26	First Amendment to Credit Agreement, dated as of October 23, 1997, by and among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank; Deposit Guaranty National Bank; Caisse Nationale De Credit Agricole, Chicago Branch; and Trustmark National Bank. (Incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.)
	10.27	Second Amendment to Credit Agreement, dated as of July 23, 1998, by and among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank; Deposit Guaranty National Bank; Caisse Nationale De Credit Agricole, Chicago Branch; and Trustmark National Bank. (Incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.)
	10.28	Third Amendment to Credit Agreement, dated as of July 29, 1999, by and among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank; First American National Bank, D/B/A Deposit Guaranty National Bank; Caisse Nationale De Credit Agricole, Chicago Branch; and Trustmark National Bank. (Incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.)
	10.29	Fourth Amendment to Credit Agreement, dated as of March 17, 2000, by and among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank; Credit Agricole Indosuez, Chicago Branch; and Trustmark National Bank. (Incorporated by reference to Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.)
	10.30	Fifth Amendment to Credit Agreement, dated as of February 16, 2001, by and among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank; Credit Agricole Indosuez, Chicago Branch; and Trustmark National Bank. (Incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.)
	10.31	Sixth Amendment to Credit Agreement dated as of July 2, 2001, by and among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank; AmSouth Bank; Credit Agricole Indosuez, Chicago Branch; and Trustmark National Bank. (Incorporated by reference to Exhibit 10d to the Quarterly Report of the Registrant for the quarter ended January 31, 2002.)
	10.32	Seventh Amendment to Credit Agreement dated as of July 29, 2002, by and among Sanderson Farms, Inc.; Harris Trust and Savings Bank, Individually and as Agent; SunTrust Bank; AmSouth Bank; and Trustmark National Bank. (Incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Quarterly Report of the Registrant for the quarter ended July 31, 2002.)
	10.33	Eighth Amendment to Credit Agreement dated as of July 31, 2003, by and among Sanderson Farms,

61

Exhibit
Number		Description
		Inc.; Harris Trust and Savings Bank, individually and as Agent; SunTrust Bank; AmSouth Bank; and Trustmark National Bank. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2003.)
	10.34	Ninth Amendment dated May 18, 2004 to Credit Agreement dated as of July 31, 1996, as amended, among Sanderson Farms, Inc., Harris Trust and Savings Bank, as agent for the Banks, and Harris Trust and Savings Bank, Sun Trust Bank, AmSouth Bank and Trustmark National Bank. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2004.)
	10.35	Agreement dated as of April 22, 1999 between Sanderson Farms, Inc. and Chase Mellon Shareholder Services, L.L.C. (Incorporated by reference to Exhibit 4.1 filed with the Registrant’s Current Report on Form 8-K dated April 22, 1999.)
	10.36	Lease Agreement dated as of December 1, 2004 between Moultrie-Colquitt County Development Authority, as Lessor, and Sanderson Farms, Inc. (Processing Division) as Lessee. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2005.)
	10.37	Bond Purchase Loan Agreement between Moultrie-Colquitt County Development Authority, as Issuer, and Sanderson Farms, Inc. (Processing Division), as Purchaser. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2005.)
	10.38	Credit Agreement dated November 17, 2005 among Sanderson Farms, Inc. and Harris N.A., Individually and as Agent for the Banks defined therein. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 23, 2005.)
	10.39	Guaranty Agreement dated November 17, 2005 of Sanderson Farms, Inc. (Foods Division), Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division). (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed November 23, 2005.)
	10.40	Intercreditor Agreement dated as of November 17, 2005 among The Lincoln National Life Insurance Company, Harris N.A., SunTrust Bank, AmSouth Bank, U.S. Bank National Association, Regions Bank, and Trustmark National Bank. (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed November 23, 2005.)
	21	List of Subsidiaries of the Registrant. (Incorporated by reference to Exhibit 21 to the Registrant’s Annual Report on Form 10-K for the year ended October 31, 2002.)
	23*	Consent of Independent Registered Public Accounting Firm.
	31.1*	Certification of Chief Executive Officer.
	31.2*	Certification of Chief Financial Officer.
	32.1**	Section 1350 Certification.
	32.2**	Section 1350 Certification.

*	Filed herewith.
**	Furnished herewith.
+	Management contract or compensatory plan or arrangement.

62

EX-10.5

                                                                    EXHIBIT 10.5

                              SANDERSON FARMS, INC.
                                       AND
                                   AFFILIATES
                          EMPLOYEE STOCK OWNERSHIP PLAN

                (AMENDED AND RESTATED EFFECTIVE NOVEMBER 1,1997)



                                TABLE OF CONTENTS

                                                                                            
                                    ARTICLE 1
                                     PURPOSE

                                    ARTICLE 2
                                   DEFINITIONS

                                    ARTICLE 3
              NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITIES

Section 3.1   Named Fiduciaries.............................................................   11

Section 3.2   Allocation of Responsibilities, Powers and Duties Among Named Fiduciaries.....   11

Section 3.3   No Joint Fiduciary Responsibility.............................................   12

Section 3.4   Delegation of Responsibility and Employment of Advisors.......................   12

Section 3.5   Establishment of Funding Procedures...........................................   12

Section 3.6   Payment of Expenses...........................................................   13

Section 3.7   Indemnification for Liability.................................................   13

                                    ARTICLE 4
                          ELIGIBILITY AND PARTICIPATION

Section 4.1   Eligible Employee.............................................................   14

Section 4.2   Participation.................................................................   14

Section 4.3   Notification of Participation.................................................   14

                                    ARTICLE 5
                                  CONTRIBUTIONS

Section 5.1   By Employers..................................................................   15

Section 5.2   Amount of Contribution........................................................   15

Section 5.3   Time and Method of Contribution...............................................   15

Section 5.4   Limitation on Allocations and Contributions...................................   15

                                    ARTICLE 6
                 ACCOUNTS ALLOCATION OF BENEFITS AND ACCOUNTING

Section 6.1   Membership of Participants....................................................   18

Section 6.2   Participants' Accounts........................................................   18

Section 6.3   Allocation of Contributions...................................................   18

Section 6.4   Investment of Cash............................................................   18

Section 6.5   Income, Losses and Expenses...................................................   18

Section 6.6   Voting of Shares..............................................................   19

Section 6.7   General Accounts..............................................................   19

Section 6.8   Annual Statements.................. ..........................................   21

                                    ARTICLE 7
                                 THE TRUST FUND

Section 7.1   Investments...................................................................   22





                                                                                            
Section 7.2   Stock Dividends, Splits, Options..............................................   22

                                    ARTICLE 8
                                     VESTING

Section 8.1   General.......................................................................   23

Section 8.2   Retirement, Death and Disability..............................................   24

Section 8.3   Termination of Service for Other Reasons......................................   24

Section 8.4   Termination of or Discontinuance of Contributions to Plan.....................   24

Section 8.5   Increase in Vesting...........................................................   24
                                    ARTICLE 9
                                  DISTRIBUTIONS

Section 9.1   Retirement....................................................................   25

Section 9.2   Disability....................................................................   25

Section 9.3   Death.........................................................................   25

Section 9.4   Other Termination of Employment...............................................   26

Section 9.5   Method and Time of Distribution...............................................   27

Section 9.6   Rollover Treatment............................................................   32

Section 9.7   Effect of Rehiring............................................................   33

Section 9.8   Hardship Distributions........................................................   34

Section 9.9   Early Distributions Due to Normal Retirement, Death or Disability.............   34

Section 9.10  Missing Persons...............................................................   34

Section 9.11  Diversification of Investments.................................................. 35

Section 9.12  Cancellations of Accounts.....................................................   36

Section 9.13  No Benefit Reduction due to Plan Amendment....................................   36

Section 9.14  In-Service Distributions......................................................   36

                                   ARTICLE 10
                                    VALUATION

Section 10.1  Valuation of Qualifying Employers' Securities.................................   39

                                   ARTICLE 11
                      SPECIAL PROVISIONS RELATING TO LOANS

                                   ARTICLE 12
                           CLAIMS PROCEDURE AND REVIEW

Section 12.1  Claims for Benefits...........................................................   45

Section 12.2  Review of Claims..............................................................   45

Section 12.3  Miscellaneous.................................................................   45

                                   ARTICLE 13
                             TRUST FUND AND TRUSTEES

                                   ARTICLE 14
                            ADMINISTRATIVE COMMITTEE

Section 14.1  Appointment of Committee......................................................   48

Section 14.2  Powers of Administrative Committee............................................   48

Section 14.3  Organization and Operation of Administrative Committee........................   48





                                                                                            
Section 14.4  Expenses of Administrative Committee..........................................   48

Section 14.5  Indemnity.....................................................................   49

                                   ARTICLE 15
                              DOMESTIC AFFILIATE(S)

Section 15.1  Joinder of Plan...............................................................   50

                                   ARTICLE 16
                        MODIFICATIONS FOR TOP HEAVY PLANS

Section 16.1  Application of Article........................................................   51

Section 16.2  Definitions...................................................................   51

Section 16.3  Amounts Included for Computation Purposes.....................................   52

Section 16.4  Accelerated Vesting...........................................................   52

Section 16.5  Minimum Contributions.........................................................   52

                                   ARTICLE 17
            AMENDMENT; MERGER, CONSOLIDATION OR TRANSFER OF ASSETS;
                         TERMINATION OR DISCONTINUANCE

Section 17.1  Amendment.....................................................................   54

Section 17.2  Merger, Consolidation, or Transfer of Assets..................................   54

Section 17.3  Termination; Discontinuance of Contributions..................................   54

Section 17.4  Duration of Trust.............................................................   55

                                   ARTICLE 18
                                  MISCELLANEOUS

Section 18.1  Nonalienation of Benefits........ ............................................   56

Section 18.2  Domestic Relations Orders.....................................................   56

Section 18.3  Authorization to Withhold Taxes...............................................   58

Section 18.4  Delegation of Authority by Employers..........................................   58

Section 18.5  Number and Gender.............................................................   58

Section 18.6  Legal Actions.................................................................   58

Section 18.7  Delays in Distribution........................................................   58

Section 18.8  Plan Document Location........................................................   59

Section 18.9  Plan Terms Control............................................................   59

Section 18.10 Severability..................................................................   59

Section 18.11 Governing Law.................................................................   59

Section 18.12 Multiple Execution............................................................   59

                                   ARTICLE 19
                      CONCERNING QUALIFIED MILITARY SERVICE





                              SANDERSON FARMS, INC.
                                       AND
                                   AFFILIATES
                          EMPLOYEE STOCK OWNERSHIP PLAN

      This Plan is adopted as of the 22nd day of October, 2002, effective
November 1, 1997, unless otherwise specified in certain Plan sections, by
Sanderson Farms, Inc. and its affiliates, Sanderson Farms, Inc. (Production
Division), Sanderson Farms, Inc. (Processing Division) and Sanderson Farms, Inc.
(Foods Division), each a corporation duly organized under the laws of the State
of Mississippi and having their principal places of business in Laurel,
Mississippi ("Employers").

                                   WITNESSETH:

      WHEREAS, Sanderson Farms, Inc. and its affiliates desire to promote in
their Employees a stronger interest in the successful operation of their
businesses, greater loyalty to the Employers and increased efficiency in their
work by providing for the Employees' greater financial security; and

      WHEREAS, Employers desire to recognize the contributions made to the
successful operation of their businesses by their Employees and to reward such
contributions for those Employees who shall qualify as Participants hereunder
and for the beneficiaries designated by such Participants;

      WHEREAS, Employers desire to encourage stock ownership by Participants and
thereby to promote an increased attachment to and participation in the
Employers' success;

      WHEREAS, this Plan and its related Trust constitute a conversion of the
qualified Profit Sharing Retirement Plan and Trust ("Profit Sharing Plan"),
adopted by Sanderson Farms, Inc. and Sanderson Farms, Inc. (Processing Division)
on June 21, 1972, effective January 1, 1972, and amended on August 10, 1972,
effective January 1, 1972, into a qualifying Employee Stock Ownership Plan for
the Employers;

      WHEREAS, the Employers completely amended, restated and continued the Plan
without a break or lapse in coverage, time or effect which would have caused any
Participant to become fully vested or entitled to distribution, in order to (a)
effect numerous technical changes for the benefit of Eligible Employees,
Participants and beneficiaries and (b) to ensure the Plan's qualification under
the applicable provisions of the Internal Revenue Code of 1986, as amended
("IRC") and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), such amendment, restatement and continuation being adopted by the
Boards of Directors of the Employers on February 24,1994, effective November
1,1989;

      WHEREAS, this Plan and its related Trust constitute a merger or
consolidation of the General Employees' Profit Sharing - Retirement Plan and
Trust of Sanderson Farms, Inc. and Affiliates, adopted by the Boards of
Directors of the Employers on April 23, 1976, executed by

                                       1



the Employers on June 17, 1976, effective January 1, 1976, restated on July 23,
1985, effective November 1, 1984, and restated on February 24, 1994, effective
November 1, 1989, into this Plan and its related Trust, such merger or
consolidation being adopted by the Boards of Directors of the Employers on April
28, 1994, effective November 1, 1993;

      WHEREAS, such merger or consolidation constituted a "merger" or
"consolidation" as defined by IRC Section 414(1) and Treasury Regulation Section
1.414(1)-1(b)(2);

      WHEREAS, such merger or consolidation satisfied and/or shall satisfy the
requirements of IRC Section 414(1) and accompanying regulations in that: a) the
sum of the account balances in each plan prior to the merger equals or shall
equal the fair market value of the assets of the resulting merged single plan;
b) the assets of each plan are or will be combined to form the assets of the
resulting merged single plan; and c) immediately after the merger, each
participant in the resulting merged single plan has or will have an account
balance equal to the sum of the account balances the participant had in both
plans immediately prior to the merger;

      WHEREAS, the Employers desire to further amend and restate the
Plan,-effective as of November 1,1997, to comply with certain changes in federal
law.

      NOW THEREFORE, the Employers adopt the Plan effective as of November
1,1997, as follows, subject to the following provisos:

            (1)The amendments to the Plan provided for hereinabove shall not
have the effect of eliminating or reducing any early retirement benefit or
retirement type subsidy (as defined in regulations promulgated by the Secretary
of the Treasury) or eliminating an optional form of benefit.

            (2)Unless specified otherwise herein, such amendment and restatement
shall not apply to a Participant who is not credited with at least one Hour of
Service on or after November 1, 1997.

                                       2



                                    ARTICLE 1

                                     PURPOSE

Section 1.1 The principal purpose of this Plan is to recognize the contributions
made to the successful operation of the Employers by their Employees and to
reward such contributions for those Employees who qualify as Participants
hereunder and for the beneficiaries designated by such Participants. Another
purpose of the Plan is to encourage stock ownership by Participants, and thereby
to promote an increased attachment to and participation in the Employers'
success. To this end, the Plan shall whenever possible and prudent acquire and
invest primarily in Qualifying Employers' Securities, as hereinafter defined.

Section 1.2 The Employers shall make contributions pursuant to the requirements
of Section 5.2 of the Plan and may also bear expenses of the administration of
the Plan. In connection with the adoption of this Plan, the Employers shall
enter into a Trust Agreement with one or more individual fiduciaries or a
corporate fiduciary, or a combination of both, hereinafter referred to as the
"Trustees" and all contributions made hereunder shall be paid to the order of
the Trustees.

Section 1.3 This Plan is established for the exclusive benefit of the
Participants and their beneficiaries. This Plan is to be interpreted in a manner
consistent with this intent and with the intention that it be recognized as a
qualifying plan under IRC Section 401 (a). In no event shall any part of the
principal or income of the Trust Fund or any of the contributions made by the
Employers to the Trustees be paid to or revested in the Employers or be used for
any purpose whatsoever other than the exclusive benefit of the Employees and
their beneficiaries. Nothing herein shall prevent the Trustees, however, from
purchasing Qualifying Employers' Securities from the Employers where it is
prudent to do so, or from paying fees, taxes and other expenses incurred in the
administration of the Plan, where such expenses are not borne or paid by the
Employers.

Section 1.4 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 Trustees or the principal and income of the Trust Fund or any
equity or interest in the assets, business or affairs of the Employers, 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 Employers.

Section 1.5 The Plan is designed and intended to qualify under IRC Section
401(a) so that (i) the Employers' contributions are currently deductible; (ii)
all income of the Trust is exempt from tax; and (iii) Participants and their
beneficiaries will not be taxed on their interest in the Plan until they have
received distribution of Plan benefits, and all of the provisions of this Plan
and its related Trust shall be interpreted in a way to give effect to this
intent. Notwithstanding any other provision of the Plan, the Boards of Directors
reserve the right:

                                       3



            (a) At any time to amend the Plan retroactively to its effective
date in any way necessary to obtain an initial determination letter from the
Internal Revenue Service that the Plan qualifies under IRC Section 401(a).

            (b) To revoke the Plan and Trust if the Internal Revenue service
refuses to issue an initial favorable determination letter or issues an
unfavorable one and to reinstate the former Profit Sharing - Retirement Plan and
Trust for continuation or subsequent termination or merger thereof with a
comparable plan.

                                       4



                                    ARTICLE 2

                                   DEFINITIONS

      The following terms have the meanings herein which are specified below
unless the context otherwise requires:

Section 2.1 "Administrative Committee" means the Administrative Committee
appointed by the Employers as provided in Section 14.1. The persons constituting
the Administrative Committee are herein referred to as "Administrative Committee
Members."

Section 2.2 "Allocation Date" means the last day of a Plan Year.

Section 2.3 "Annual Additions" means the sum of the following amounts credited
to a Participant's account for the Limitation Year:

            (a) Employer contributions;

            (b) forfeitures; and

            (c) the lesser of (i) one-half (1/2) of the nondeductible employee
contributions or (ii) the nondeductible employee contributions in excess of six
percent (6%) of the Participant's Section 415 Compensation for the Limitation
Year. For this purpose, any Excess Amount applied under subsections (d) or (h)
in the Limitation Year to reduce Employer contributions will be considered
Annual Additions for such Limitation Year.

      Allocations to Participants' accounts of assets withdrawn from the
unallocated stock account when securities are released from encumbrance
pertaining to exempt loan transactions shall be included in the limitations
prescribed in the preceding paragraph of this subsection. For purposes of
applying the limitations of IRC Section 415, to such allocations, contributions
used by the Plan to pay the exempt loan are treated as Annual Additions to
Participants' accounts.

Section 2.4 "Annual Compensation" shall mean for a Participant during a Plan
Year "compensation," as defined in Section 1.415-2(d)(ll)(2) of the Income Tax
Regulations, increased by any amounts that are not currently includable in the
Participant's gross income by reason of IRC Sections 125, 132(f), 402(a)(8),
402(h)(1)(B) or 403(b). No Participant shall be deemed to have Annual
Compensation for a Plan Year in an amount in excess of $150,000 as adjusted in
accordance with the provisions of IRC Sections 401(a)(17). In the case of a
Participant who becomes such on a day other than the first day of the Plan Year,
Compensation shall not include amounts paid prior to the date he becomes a
Participant.

Section 2.5 "Boards" means the Boards of Directors of the Employers.

Section 2.6 "Break-in-Service" for purposes of determining eligibility for
participation means an eligibility computation period during which the Employee
fails to complete more than 500 Hours of Service with the Employers.

                                       5


Section 2.7 "Casual Laborer" means each Employee who is classified as a "casual
laborer" under the normal payroll practices of the Employers.

Section 2.8 "Compensation" of any Participant means all taxable remuneration
received, except performance incentive awards, from the Employers in the whole
or part of a Plan Year in which the Employee participates in the Plan and as
further defined in Subparagraph 5.4(i)(6) of the Plan. Compensation of any
Participant shall not include any part of the Employers' 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 amounts in respect of any options to purchase stock granted Employees. No
Participant shall be deemed to have Compensation for a Plan Year in excess of
$150,000 as adjusted in accordance with the provisions of IRC Section
401(a)(17).

Section 2.9 "Effective Date" shall be November 1, 1997, except as otherwise
provided in certain Plan sections.

Section 2.10 "Eligible Employee" means each Employee eligible to become a
Participant in the Plan as described in ARTICLE 4 hereof.

Section 2.11 "Employee" means each person who is employed by the Employers.

Section 2.12 "Employee Contributions" means contributions made voluntarily to
the Plan by Participants in the Plan. This Plan does not permit Employee
Contributions.

Section 2.13 "Employers" means Sanderson Farms, Inc., Sanderson Farms, Inc.
(Production Division), Sanderson Farms, Inc. (Processing Division) and Sanderson
Farms, Inc. (Foods Division), all of which are Mississippi corporations. All
employees of all corporations which are members of a controlled group of
corporations (as defined in IRC Section 414(b)) and all employees of all trades
or businesses (whether or not incorporated) which are under common control (as
defined in IRC Section 414(c)) shall be treated as employed by one single
employer.

Section 2.14 "Excess Amount" means the excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible Amount.

Section 2.15 "Family and Medical Leave Absences." In the case of an Employee who
is absent from work for reasons authorized by The Family and Medical Leave Act
of 1993 or other statutory leave, the provisions of Section 2.17 of the Plan
shall apply.

Section 2.16 "Highly Compensated Employee" means an Employee who:

      (a) during the current Plan Year of the preceding Plan Year, owned (or was
considered as owning) more than five percent (5%) of the outstanding stock of an
Employer or Related Employer or stock possessing more than five percent (5%) of
the total combined voting power of all stock of an Employer or Related Employer,
or

      (b) during the preceding Plan Year, received Annual Compensation from the
Employer and Related Employer in excess of $80,000 multiplied by the Adjustment
Factor.

                                       6



For purposes of this Section 2.16, the following rules shall apply:

      (c) For purposes of applying IRC Section 318 to paragraph (b) above, IRC
Section 318(a)(2) shall be applied by substituting "5 percent" for "50 percent."

      (d)The term "Highly Compensated Employee" also includes, for a Plan Year,
a former Employee who had a Separation Year prior to the Plan Year and who met
the requirements of paragraphs (a) through (c) above for either such Separation
Year or any Plan Year ending on or after his 55th birthday. For purposes of this
paragraph, an individual who is, or has previously been, an Employee and who
performs no services for an Employer during a Plan Year shall be treated as a
former Employee (including, for example, an Employee who performed no services
for an Employer during a Plan Year by reason of an Authorized Leave of Absence).
A former Employee who is treated as a Highly Compensated Employee for a Plan
Year shall not be taken into account in determining the group consisting of the
top twenty percent (20%) of all Employees when ranked on the basis of Annual
Compensation for the Plan Year for purposes of paragraph (b) above.

Section 2.17 "Hour of Service" means

      (a) an Hour of Service is each hour for which an Employee is paid, or
entitled to payment, for the performance of duties for the Employers during the
applicable computation period;

      (b) an Hour of service is each hour for which an Employee is paid, or
entitled to payment, by the Employers 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 501 Hours of Service 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).

      (c) An Hour of Service is each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by the Employers. The same
Hours of Service shall not be credited both under paragraph (a) or paragraph
(b), as the case may be, and under this paragraph (c).

      (d) Labor Regulations Section 2530.200b-2(b) and (c) are incorporated by
reference.

      (e) Hours of Service will be credited for employment with any of the
Employers.

      (f) Solely for purposes of determining whether an individual has incurred
a Break in Service each hour of such individual's customary work period during
an absence that begins after December 31, 1984, and that is due to

            (1) pregnancy of the individual;

                                       7



            (2) birth of a child of the individual;

            (3) placement of a child in connection with the adoption of a child
   in connection with the adoption of the child by the individual; or

            (4) caring for the child during the period of birth or placement for
   adoption shall be considered an Hour of Service.

Notwithstanding the foregoing provisions:

                  (A) Hours of Service described in this paragraph (f) shall be
      credited to the Plan Year in which the 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 (f) shall be credited to
      the next following Plan Year to the extent, if any, necessary to assure
      that the individual will not suffer a Break in Service in such following
      Plan Year;

                  (B) the Administrative Committee shall have the right as a
      condition precedent to providing credit under this paragraph to require
      the individual to certify, on such written form as may be provided by the
      Administrative Committee, that the absence was for a reason permitted
      under this paragraph (f), to require the individual to supply information
      relating to the number of normal work days for which there was an absence
      under this paragraph (f), and to verify the correctness of such
      certification by any reasonable means; and

                  (C) the total number of Hours of Service required to credited
      under this paragraph (f) shall not exceed 501 Hours of Service.

Section 2.18 "Limitation Year" means the twelve (12) month period ending October
31 of each year. All qualified plans maintained by the Employers must use the
same Limitation Year. If the Limitation Year is amended to a different twelve
(12) consecutive month period, then the new Limitation Year must begin on a date
within the Limitation Year in which the amendment is made.

Section 2.19 "Maximum Permissible Amount" means, notwithstanding anything
contained herein to the contrary, the total amount of the annual additions
credited to a Participant's Account and any account or accounts under a related
plan or plans for a Limitation Year shall not exceed the lesser of (i) or (ii)
below prior to January 1, 2002, or (iii) or (iv) below beginning January 1,2002,
where

      (i)   Is 25% of such Participant's Section 415 Compensation for the
            Limitation Year;

                                       8



      (ii)  Is $30,000 as adjusted as provided in IRC Section 415(d); and

      (iii) Is 100% of the Participant's Section 415 Compensation, within the
            meaning of IRC Section 415(c)(3) for the Limitation Year; or

      (iv)  Is $40,000, as adjusted for increases in the cost-of-living under
            IRC Section 415(d).

If a short Limitation Year is created because of an amendment changing the
Limitation Year to a different 12-consecutive month period, then the Maximum
Permissible Amount will not exceed the applicable dollar amount above multiplied
by the following fraction:

                  Number of months in the short Limitation Year
                                       12

Section 2.20 "Normal Retirement Date" of a Participant shall be the date that
such Participant attains his 65th birthday. However, the Participant may elect
to postpone such retirement date and continue his participation in this Plan and
the Trust until he retires from employment with the Employers. Notwithstanding
any provision to the contrary, a Participant shall be 100% vested in his normal
retirement benefit at age sixty-five (65).

Section 2.21 "Participant" means each Eligible Employee who has accepted the
Plan in the manner provided in ARTICLE 4 hereof. A Participant may cease to be a
Participant upon certain events herein described.

Section 2.22 "Plan" means the Employee Stock Ownership Plan of the Employers as
herein set forth and as the same may be amended from time to time. This Plan is
designated and may be referred to as the "Sanderson Farms, Inc. and Affiliates
Employee Stock Ownership Plan." The Employee Stock Ownership Plan herein further
means a defined contribution plan:

      (a)Which is a stock bonus plan qualified under IRC Section 401(a) and
ERISA and designed to invest primarily in Qualifying Employers' Securities; and

      (b)Which meets such other requirements as the Secretary of the Treasury
may prescribe by regulation.

Section 2.23 "Plan Year" or "Fiscal Year of the Plan" means the year ending
October 31.

Section 2.24 "Qualifying or Qualified Employers' Security or Securities" means
any share of capital stock now or hereafter issued by any of the Employers and
as further defined by Section 409(1) of the IRC and/or ERISA and regulations
issued by the Secretary of the Treasury and/or Labor pertaining thereto or by
any amendments thereof.

Section 2.25 "Section 415 Compensation" means:

      (a) Section 3401(a) wages. Section 415 Compensation is defined as wages
within the meaning of IRC Section 3401 (a) 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

                                       9



on the nature or location of the employment or the services performed (such as
the exception for agricultural labor in IRC Section 3401 (a)(2)) and without
regard to incentive awards.

      (b) Section 415 Compensation shall include only that compensation which is
actually paid to the Participant during the Determination Period. Except as
provided elsewhere in this Plan, the "Determination Period" means the Plan Year.

      (c) For Plan Years beginning after December 31, 1993, the annual
compensation of each Participant taken into account for determining all benefits
provided under the Plan for any determination period shall not exceed $150,000,
as adjusted by the Secretary in accordance with IRC Section 401(a)(17).

Section 2.26 "Trust Agreement" means the Employee Stock Ownership Plan Trust
Agreement, effective November 1, 1993, between the Trustees named therein and
the Employers, made and entered into for the establishment of a trust to receive
all contributions which may be made to the order of the Trustees under the Plan,
and any and-all-amendments of the Trust Agreement.

Section 2.27 "Trustee" or "Trustees" mean the Trustees named under the Trust
Agreement and their duly appointed successors.

Section 2.28 "Trust Fund" means the Trust Fund of the original Profit Sharing
Plan heretofore created by the Employers, all contributions from time to time
received from the Employers in cash or other property, the Trust Fund of the
General Employees' Profit Sharing - Retirement Trust subsequent to merger and
any and all securities and other qualifying property purchased or otherwise
acquired out of such funds, together with the income therefrom less any and all
distributions made therefrom and any and all losses, expenses and other amounts
chargeable thereto.

Section 2.29 "Year of Service" for purposes of determining eligibility for
participation means employment by the Employers for at least 1,000 Hours of
Service in a year (a period of twelve (12) consecutive calendar months). The
computation of the twelve (12) month period is to be made with reference to the
date of commencement of employment, except that the computation shall be made
with reference to the first day of any Plan Year in the case of an Employee who
does not complete 1,000 Hours of Service during the first twelve (12) months of
his employment. "Year of Service" for purposes of determining vesting means a
Plan Year during which an Employee has completed 1,000 Hours of Service. In any
vesting computation period overlapping a Participant's first year of employment,
credit shall be given for a Year of Service for vesting purposes if, for
participation purposes, such Participant completes a Year of Service based on
his employment year. Service of any Employee who is a leased Employee to any
Employer aggregated under IRC Section 414(b), (c) or (m) shall be credited for
vesting purposes whether or not such individual is eligible to participate in
the Plan.

                                       10



                                    ARTICLE 3

              NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITIES

Section 3.1 Named Fiduciaries.

   The following persons shall be "Named Fiduciaries" under the Plan and Trust
Agreement, and shall be the only Named Fiduciaries thereunder.

      (a) Named Fiduciaries with Respect to Control or Management of Assets:

         (1) The Trustees.

            The Trustees shall have exclusive authority and discretion to manage
and control the Trust Fund, as provided in the Trust Agreement, and shall have
no other responsibilities other than those provided in in the Trust Agreement.

         (2) The Employers, as Plan Sponsors.

               The Employers shall be responsible for all functions assigned or
reserved to them under the Plan and the Trust Agreement, including the right to
remove or replace the Trustees. Any authority assigned or reserved to the
Employers under the Plan and the Trust Agreement, other than responsibilities
assigned to the Administrative Committee, shall be exercised by resolution of
the Employers' Boards of Directors, and shall become effective, with respect to
the Trustees, upon written notice to the Trustees signed by the Chairman,
President, Treasurer or Secretary of the Employers advising the Trustees of such
exercise.

      (b) Other Named Fiduciaries.

         (1) The Administrative Committee.

            The Administrative Committee of the Plan serves as the "Plan
Administrator" and is the committee appointed by the Employers as provided in
Section 14.1.

Section 3.2 Allocation of Responsibilities, Powers and Duties Among Named
Fiduciaries.

      (a) Trustees.

               The Trustees shall have exclusive responsibility for the control
and management of the assets of the Fund, as provided in the Trust Agreement.

      (b) Administrative Committee.

         The Administrative Committee shall have the responsibility and
authority to control the operation and administration of the Plan in accordance
with the terms of the Plan and the Trust Agreement, including, without limiting
the generality of the foregoing, (1) All functions assigned to the
Administrative Committee under the terms of the Plan and the Trust Agreement;
(2) Hiring of persons to provide necessary services to the Plan; (3) Issuance of

                                       11



directions to the Trustees to pay any fees, taxes, charges or other costs
incidental to the operation and management by the Administrative Committee; (4)
The preparation and filing of all reports required to be filed by the Plan with
any agency of government; (5) Compliance with all disclosure requirements
imposed by state or federal laws; and (6) Maintenance of all records of the Plan
other than those required to be maintained by the Trustees.

      (c) The Employers.

         The Employers shall have the authority and responsibility for (1) The
design of the Plan, including the right to amend the Plan; (2) The qualification
under applicable law of the Plan, any amendments to the Plan, and any document
relating to the Plan; (3) The funding of the Plan; (4) The designation of all
Named Fiduciaries as provided in the Plan and the Trust Agreement; and (5) The
exercise of all fiduciary functions provided in the Plan or in the Trust
Agreement or necessary to the operation of the Plan except such functions as are
assigned to other Named Fiduciaries pursuant to the Plan or the Trust Agreement.

Section 3.3 No Joint Fiduciary Responsibility.

         This Article is intended to allocate to each Named Fiduciary the
individual responsibility for the prudent execution of the functions assigned to
him, and none of such responsibilities or any other responsibility shall be
shared by two or more of such Named Fiduciaries unless such sharing shall be
provided by 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
a 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 3.4 Delegation of Responsibility and Employment of Advisors.

         A Named Fiduciary may employ one or more persons to render advice
concerning any responsibilities such Named Fiduciary has under the Plan or the
Trust Agreement. A Named Fiduciary (other than the Trustees with respect to the
control of the assets of the Plan) shall have the power to delegate specific
fiduciary responsibilities. Such delegations may be to officers or employees of
the Employers or to other individuals, all of whom shall serve at the pleasure
of the Named Fiduciary, and, if full-time employees of the Employers, without
compensation. Any such person may resign by delivering a written resignation to
the Named Fiduciary. Vacancies created by resignation, death or other cause may
be filled by the Named Fiduciary or the assigned responsibilities may be
reassumed or redelegated by the Named Fiduciary.

Section 3.5 Establishment of Funding Procedures.

         The Employers shall be charged with the responsibility for the
development of a policy for the funding of the Plan that is consistent with the
purposes of the Plan and the requirements of the IRC and ERISA.

                                       12



Section 3.6 Payment of Expenses.

         If not borne or paid by the Plan, the Employers may pay all expenses of
administering the Plan. Such expenses shall include any expenses incident to the
functioning of those to whom the Employers or any other Named Fiduciary has
delegated fiduciary duties, including, but not limited to, the payment of
accounting, consulting and legal fees, investment expenses and the cost of
administering the Plan.

Section 3.7 Indemnification for Liability.

         The Employers shall indemnify those to whom the Employers or any other
Named Fiduciary 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.

                                       13



                                    ARTICLE 4

                          ELIGIBILITY AND PARTICIPATION

Section 4.1 Eligible Employee.

         Any Employee other than a Casual Laborer who has completed one (1) Year
of Service with the Employers and who has attained twenty-one (21) years of age
shall be eligible to participate in the Plan no later than the next succeeding
November 1 or May 1.

         Any present Employee who was a participant in the former Profit Sharing
Plan shall by virtue thereof be eligible to participate in this Plan as a
continuation, by conversion, thereof and all his right, title and interest in
such former Profit Sharing Plan shall be preserved herein.

         Any present Employee who was a participant in the former General
Employees' Profit Sharing - Retirement Trust Agreement of Sanderson Farms, Inc.
and Affiliates shall by virtue thereof be eligible to participate in this Plan
as a continuation, by merger or consolidation, thereof and all his right, title
and interest in such former plan shall be preserved herein.

         Any Employees who are 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 one or more of the Employers
shall be excluded from participation in this Plan 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 one or
more of the Employers agrees to cover the Employees who comprise the collective
bargaining unit.

         Any present Employee who is eligible on the effective date shall become
a Participant as of the effective date. Any present Employee who is ineligible,
and any future Employee, shall become eligible upon fulfilling the requirements
of Section 4.1 no later than the dates specified therein.

Section 4.2 Participation.

         Every Participant shall remain a Participant until his employment has
terminated. In the event that the employment of a Participant terminates and
such Participant is subsequently re-employed by the Employers, he shall become a
Participant in the Plan on the date of his re-employment and all prior Years of
Service for all purposes of the Plan shall be reinstated except as provided
under Section 9.7.

Section 4.3 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.

                                       14



                                    ARTICLE 5

                                  CONTRIBUTIONS

Section 5.1 By Employers.

         All contributions under the Plan shall be made by the Employers,
pursuant to Section 5.2 of the Plan, and no contributions shall be required or
permitted of any Employee.

Section 5.2 Amount of Contribution.

         Subject to the provisions of ARTICLE 17 in regard to amendment and
termination of the Plan and in regard to the liability of the Employers under
the Plan, the Employers shall contribute to the Trust Fund for each fiscal year
ending October 31 an amount, if any, determined on or before the last day of
each taxable year by their Boards of Directors. The determination to make a
contribution in any Plan Year shall rest solely with, and be in the discretion
of, the Board of Directors of the Employers. In no event, however, shall any
such contribution for any year together with any other contribution to a
qualified defined contribution plan for common participants exceed the maximum
amount deductible from the Employers' income for such year under IRC Sections
404(a)(3)(A), 404(a)(7) or 404(j) or any statute of similar import.
Contributions may be made in cash or in Qualifying Employers' Securities
(whether voting or nonvoting). Neither the Trustees nor the Administrative
Committee nor any other person shall be under any duty to inquire into the
correctness of the amount contributed and paid over to the Trustees hereunder,
nor shall the Trustees or the Administrative Committee or any other person be
under any duty to enforce the payment of the contributions to be made hereunder
by the Employers. See ARTICLE 11 for contributions as related to loans.

Section 5.3 Time and Method of Contribution.

         The amount of the Employers' contributions for each year, if any, shall
be paid to the order of the Trustees, either in a single payment or in
installments, and either in cash or in Qualifying Employers' Securities valued
at the fair market value thereof at the time of the contribution, in the manner
provided in ARTICLE 10 hereof, and within such period as is provided for in IRC
Section 404(a)(6) or any other statute of similar import, or any rule or
regulation thereunder.

Section 5.4 Limitation on Allocations and Contributions.

         (a) If the Participant does not participate in, and has never
participated in another qualified plan maintained by the Employers, then the
amount of Annual Additions which may be credited to the Participant's account
for any Limitation Year will not exceed the lesser of the Maximum Permissible
Amount or any other limitation contained in this Plan. If the Employer's
contribution that would otherwise be contributed or allocated to the
Participant's account would cause the Annual Additions for the Limitation Year
to exceed the Maximum Permissible Amount, then the amount contributed or
allocated will be reduced so that the Annual Additions for the Limitation Year
will equal the Maximum Permissible Amount.

                                       15



         (b) Prior to determining the Participant's actual compensation for the
Limitation Year, the Employers may determine the Maximum Permissible Amount for
a Participant on the basis of a reasonable estimation of the Participant's
compensation for the Limitation Year, uniformly determined for all Participants
similarly situated.

         (c) 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 Participant's actual compensation for the
Limitation Year.

         (d) If there is an Excess Amount the excess will be disposed of as
follows:

            (1) Any nondeductible Voluntary Employee Contributions, to the
   extent they would reduce the Excess Amount, will be returned to the
   Participant;

            (2) If after the application of paragraph (1) an Excess Amount still
   exists, and the Participant is covered by the Plan at the end of the
   Limitation Year, then the Excess Amount in the Participant's account will be
   used to reduce the Employer's contributions (including any allocation of
   forfeitures) for such Participant in the next Limitation Year, and each
   succeeding Limitation Year if necessary;

            (3) If after the application of paragraph (1) an Excess Amount still
   exists, and the Participant is not covered by the Plan at the end of the
   Limitation Year, then the Excess Amount will be held unallocated in a
   Suspense Account. The Suspense Account will be applied to reduce future
   Employer contributions (including allocation of any forfeitures) for all
   remaining Participants in the next Limitation Year, and each succeeding
   Limitation Year if necessary;

            (4) If a Suspense Account is in existence at any time during the
   Limitation Year pursuant to this section, then such Suspense Account will not
   participate in the allocation of the Trust's investment gains and losses.

         (e) This subsection applies if, in addition to this Plan, the
Participant is covered under another qualified defined contribution plan
maintained by the Employers during any Limitation Year. The Annual Additions
which may be credited to a Participant's account under this Plan for any such
Limitation Year will not exceed the Maximum Permissible Amount reduced by the
Annual Additions credited to a Participant's account under the other plans for
the same Limitation Year. If the Annual Additions with respect to the
Participant under other defined contribution plans maintained by the Employers
are less than the Maximum Permissible Amount and the Employer contribution that
would otherwise be contributed or allocated to the Participant's account under
this Plan would cause the Annual Additions for the Limitation Year to exceed
this limitation, then the amount contributed or allocated will be reduced so
that the Annual Additions under all such plans for the Limitation Year will
equal the Maximum Permissible Amount. If the Annual Additions with respect to
the Participant under such other defined contribution plans in the aggregate are
equal to or greater than the Maximum Permissible Amount, then no amount will be
contributed or allocated to the Participant's account under this Plan for the
Limitation Year.

                                       16


         (f) If a Participant's Annual Additions under this Plan and such other
plans would result in an Excess Amount for a Limitation Year, then the Excess
Amount will be deemed to consist of the Annual Additions last allocated.

         (g) If an Excess Amount was allocated to a Participant on an allocation
date of this Plan which coincides with an allocation date of another plan, then
the Excess Amount attributed to this Plan will be the product of,

            (1) the total Excess Amount allocated as of such date, times

            (2) the ratio of (i) the Annual Additions allocated to the
      Participant for the Limitation Year as of such date under this Plan to
      (ii) the total Annual Additions allocated to the Participant for the
      Limitation Year as of such date under this and all the other qualified
      defined contribution plans.

         (h) Any Excess Amount attributed to this Plan will be disposed of in
the manner described in subsection(d).

         (i) If no more than one-third (1/3) of the Employer contributions to
the Plan for a year which are deductible under IRC section 401(a)(9) are
allocated to highly compensated Employees, the limitations imposed by IRC
Section 415 shall not apply to -

            (1) Forfeitures of Qualifying Employers' Securities under the Plan
      if such securities were acquired with fee proceeds of an exempt loan as
      described in ARTICLE 11, or

            (2) Employer contributions to the Plan which are deductible under
      IRC Section 404(a)(9)(B) pertaining to the deduction of Employer
      contributions to the Plan which are applied to the repayment of interest
      on an exempt loan, and charged against the Participant's accounts.

         (j) No portion of the assets of the Plan attributable to (or allocable
in lieu of) Qualifying Employers' Securities acquired by the Plan in a sale to
which IRC section 1042 applies may accrue (or be allocated directly or
indirectly under any plan of the Employers meeting the requirements of IRC
Section 401 (a)) during the nonallocation period (as defined in IRC section
409(n)(3)(C)), for the benefit of any taxpayer who makes an election under IRC
Section 1042(a) with respect to Qualifying Employers' Securities, any individual
who is related to the taxpayer or the decedent (within the meaning of IRC
Section 267(b)), or for the benefit of any other person who owns (after
application of IRC section 318(a) applied without regard to the Employee trust
exception) more than twenty-five (25) percent of any class of outstanding stock
of the Employers which issued such Qualifying Employers' Securities or of any
corporation which is a member of the same controlled group of corporations
(within the meaning of IRC Section 409(1)(4)) as such Employers, or the total
value of any class of outstanding stock of any such Employers or corporation.

                                      17



                                    ARTICLE 6

                 ACCOUNTS ALLOCATION OF BENEFITS AND ACCOUNTING

Section 6.1 Membership of Participants.

         At the time of the first annual contribution by the Employers to the
Trust, the Administrative Committee shall prepare and deliver to the Trustee in
charge of the records a list of all the Employees eligible to participate herein
and the Employers shall certify to such Trustee the total amount of compensation
paid by the Employers to each such Employee with respect to the fiscal year of
Employers to which such contribution is applicable. From time to time
thereafter, as the need shall arise, the Employers shall notify the Trustee in
charge of the records in writing of all changes in the membership of the
Eligible Employees and of the total compensation of such Eligible Employees for
each fiscal year with respect to which a contribution made by the Employers.

Section 6.2 Participants' Accounts.

         The Trustee in charge of the records shall open a separate bookkeeping
account in the name of each Participant and shall credit to each such account
that portion of each contribution of the Employers to the Trust to which such
Participant shall be entitled.

Section 6.3 Allocation of Contributions.

         The Trustee in charge of the records shall allocate to the account of
each Participant employed as of the end of any Fiscal Year of the Plan the
proportion of any cash contribution and the proportion of any contribution of
Qualifying Employers' Securities made for a particular year that such
Participant's Compensation for that year bears to the aggregate Compensation of
all Participants during the same year, subject to the limitation heretofore
provided in Section 5.4.

Section 6.4 Investment of Cash.

         Any cash received by the Trustees for the account of any Participant or
credited to the account of any Participant shall be invested primarily in
Qualifying Employers' Securities when possible and prudent. Pending such
investment of cash in securities, however, the Trustees may retain cash
uninvested without liability for interest, or may invest all or any part thereof
in suitable investments and securities.

Section 6.5 Income, Losses and Expenses.

         As of each Accounting Date (the close of the fiscal year of the Plan
and Trust), Participants' accounts shall be credited with their share of income
and charged with their share of losses or interest expense, if any, in
proportion to the total of the accounts at the beginning of the year, less any
distributions made during the year. All dividends, income, and other property
received by the Trustees applicable to a Participant's account shall be credited
to that account. To the extent practicable, possible and prudent, property
(other than Qualifying Employers'

                                      18



Securities) in a Participant's account shall be converted by the Trustees into
cash and invested primarily in Qualifying Employers' Securities.

         There shall be allowed as a deduction for a taxable year the amount of
any applicable dividend paid in cash by the Employers during the taxable year
with respect to applicable Qualifying Employers' Securities. Such deduction
shall be in addition to the deductions allowed under IRC Section 404(a). The
term "applicable dividend" means any dividend which, in accordance with the Plan
provisions -

         (a) is paid in cash to the Participants in the Plan or their
beneficiaries;

         (b) is paid to the Plan and is distributed in cash to Participants in
the Plan or their beneficiaries not later than ninety (90) days after the close
of the Plan Year in which paid; or

         (c) is used to make payments on an exempt loan described in ARTICLE
11, the proceeds of which were used to acquire Qualifying Employers' Securities
(whether or not allocated to Participants) with respect to which the dividend is
paid.

         A dividend described in (c) above which is paid with respect to any
Qualifying Employers' Security which is allocated to a Participant shall not be
treated as an applicable dividend unless the Plan provides that Qualifying
Employers' Securities with a fair market value of not less than the amount of
such dividend are allocated to such Participant for the year in which (but for
this subparagraph) such dividend would have been allocated to such Participant.

Section 6.6 Voting of Shares.

         Shares of Qualifying Employers' Securities held by the Trustees,
wherever credited, shall be voted by the Trustees at the direction of the
Administrative Committee. If the Qualifying Employers' Securities held by the
Trustees are a registration-type class of securities, then each Participant or
beneficiary in the Plan shall be entitled to direct the Plan as to the manner in
which securities of the Employers which are entitled to vote and are allocated
to the account of such Participant or beneficiary are to be voted. If the
Qualifying Employers' Securities held by the Trustees are not registration-type
class of securities, then each Participant in the Plan shall be entitled to
direct the Plan as to the manner in which voting rights under Employers'
securities which are allocated to the account of such Participant are to be
exercised with respect to a corporate matter which (by law or charter) must be
decided by more than a majority vote of outstanding common shares voted.

Section 6.7 General Accounts.

         The Trustees, if desired and practicable, may maintain general
accounts, designated, for example, as "Unallocated Cash Account", "Unallocated
Stock Account" and, if appropriate, an "Investment Account".

         Cash accounts shall be kept in dollars and cents. Stock accounts shall
be kept in number of whole shares of Qualifying Employers' Securities, and shall
also show the share price. Participants' accounts shall be kept in a combination
of the two and shall show allocated

                                      19



interests in the Investment Account, if any. Allocations to the several accounts
shall be made once a year as of the Accounting Date. The Unallocated Cash
Account and Unallocated Stock Account, if maintained, will record day-to-day
cash and stock transactions of the Trust which are not allocable to
Participants' accounts as of the day of the transactions. Participants' accounts
will maintain a record of allocated Participants' interests in the Plan.

         At any Accounting Date when there is a loan outstanding to the Trust,
or when there is no loan outstanding, all cash received by the Trustees may
initially be credited to the Unallocated Cash Account, and all Qualifying
Employers' Securities acquired by the Trustees may initially be credited to the
Unallocated Stock Account, if both general accounts are maintained. As of each
Accounting Date, Employers' contributions and forfeitures for the year, cash
dividends received on Qualifying Employers' Securities, if any, the interest
paid or payable during the year if any part of a loan is outstanding, and the
shares of Qualifying Employers' Securities released from the Unallocated Stock
Account, if maintained, shall be allocated among Participants' accounts in the
following manner:

         (a) Dividends on shares of Qualifying Employers' Securities allocated
to Participants' stock accounts at the beginning of the year shall be credited
to each Participant's account.

         (b) any forfeitures of Qualifying Employers' Securities and any cash
forfeitures which have matured during the year shall be allocated to
Participant' accounts in the manner set forth in Section 6.3.

         (c) Dividends on .Qualifying Employers' Securities held in the
Unallocated Stock Account, any interest received and any other items of income
shall be allocated to Participants' accounts in the same ratio that the balances
in each Participant's separate account or accounts bear to the aggregate
accounts of all Participants at the beginning of such fiscal year, less
distributions, if any, made in such year.

         (d) Each Participant's share of the Employers' contributions (in
whatever form) shall be credited to Participants' accounts in the manner set
forth in Section 6.3.

         (e) Shares of Qualifying Employers' Securities released from the
Unallocated Stock Account, if maintained, equaling the balance of Participants'
cash accounts divided by the share price shall be allocated to Participants'
stock accounts. Additions to the Investment Account, if maintained, and
Investment Account Income, if any, shall be computed on each Accounting Date and
each Participant's account shall be credited with his share of additions to the
Investment Account or Investment Account Income in the same ratio that the
balances in each Participant's separate account or accounts bear to the
aggregate accounts of all Participants at the beginning of such fiscal year and
shall be based upon the amounts of such accounts at the beginning of such fiscal
year, less distributions, if any, made in such year. Investment Account Income
is the net increase or decrease during the year attributable to its income and
expenses, gains and losses whether or not realized in the Investment Account.

                                      20



Section 6.8 Annual Statements.

         On or before the expiration of four (4) calendar months after each
annual Accounting Date, or as soon as administratively feasible thereafter, the
Administrative Committee shall upon information furnished by the Trustees, or
the Trustees shall upon direction of the Administrative Committee, make annual
reports to each Participant as of the Accounting Date, and the Accounting Date
immediately preceding showing the balances in all of each Participant's account
or accounts.

                                      21



                                    ARTICLE 7

                                 THE TRUST FUND

Section 7.1 Investments.

         The Trustees shall use available cash and are authorized to borrow
money to buy Qualifying Employers' Securities from whatever source is available,
when prudent, including newly issued stock of the Employers.

         If no established market for any Qualifying Employers' Securities
exists, then the Trustees shall make purchases only upon obtaining independent
valuations, as provided in ARTICLE 10, of said Securities and shall make
purchases only at independently valued purchase prices together with reasonable
acquisition charges, if any, as may be necessary.

         If no Qualifying Employers' Securities are available for purchase, then
the Trustees shall make other investments as provided in Section 6.4.

Section 7.2 Stock Dividends, Splits, Options.

         Any share of Qualifying Employers' Securities received by the Trustees
as a stock dividend or stock split or as a result of a reorganization or
recapitalization of the Employers shall be allocated as of each Accounting Date
in the same manner as the Securities to which it is attributable are then
allocated. Any rights, warrants or options that are issued on Qualifying
Employers' Securities held by the Trustees shall be exercised by the Trustees
for the acquisition when prudent of additional shares of Qualifying Employers'
Securities to the extent cash is then available. Securities acquired through the
exercise of any such right, warrant or option shall be treated in the same
fashion as securities purchased by the Trustees for the net price paid. Rights,
warrants or options on Qualifying Employers' Securities not exercised may be
sold by the Trustees and the proceeds treated as a current cash dividend
received on Qualifying Employers' Securities.

                                      22



                                    ARTICLE 8

                                    VESTING

Section 8.1 General.

         A percentage of the amount credited to a Participant's account shall
become vested and nonforfeitable on the basis of his completed Years of Service
with the Employers according to the following schedule:



   Completed
Years of Service  Vested Percentage
- ----------------  -----------------
               
     1-2                   0%
     3                    20%
     4                    40%
     5                    60%
     6                    80%
     7                   100%


         If the Plan's vesting schedule is amended, or the Plan is amended in
any way that directly or indirectly affects the computation of the Participant's
nonforfeitable percentage or if the Plan is deemed amended by an automatic
change to or from a top-heavy vesting schedule, then each Participant with at
least three (3) Years of Service with the Employers 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 Employers or.

         No amendment to the Plan shall reduce or restrict, either directly or
indirectly, the benefit provided any Participant in the Plan prior to the
amendment, unless the Plan amendment satisfies the requirements of IRC Section
412(c)(8) (relating to certain retroactive amendments) and the regulations
thereunder. Furthermore, no amendment to the Plan shall have the effect of
decreasing a Participant's vested interest determined without regard to such
amendment as of the later of the date such amendment is adopted or the date it
becomes effective. For purposes of determining whether or not any Participant's
accrued benefit or account balance is decreased, all the provisions of the Plan
affecting directly or indirectly the computation of accrued benefits or

                                      23



account balances which are amended with the same adoption and effective dates
shall be treated as one Plan amendment.

Section 8.2 Retirement, Death and Disability.

         Upon the death or Total and Permanent Disability of a Participant, or
upon his retirement on or after normal retirement date, a benefit equal to the
value of the entire amount credited to his account or accounts shall become 100%
vested and nonforfeitable, if the Participant is not already fully vested.

Section 8.3 Termination of Service for Other Reasons.

         In the event of termination of a Participant's employment by reason of
resignation or by any reason other than retirement at or after normal retirement
date, death or Total and Permanent Disability, the nonvested portion of the
amount credited to his account shall be forfeited-as provided in Section 9.4. As
of the Accounting Date, the Trustee in charge of the records shall allocate
among the Participants' accounts any account balances forfeited under this
Section 8.3 which have matured for forfeiture during the fiscal year then
ending. This allocation shall be made in the same ratio as Employer
contributions are allocated pursuant to Section 6.3.

         An involuntary cash-out, which may be distributed as provided in
Section 9.4, may not be an amount less than the present value of an Employee's
entire Employer-derived nonforfeitable benefit at the time of the distribution.

         All cash-outs (voluntary or involuntary), which are distributed as
provided in Section 9.4, must be made due to an Employee's termination of
participation in the Plan.

Section 8.4 Termination of or Discontinuance of Contributions to Plan.

         In the event that the Employers' agreement to make contributions to the
Plan and Trust be permanently terminated, whether by amendment, or by
bankruptcy, liquidation, or other business reason, or upon termination of the
Trust, the value of the entire amount credited to each Participant's account or
accounts shall become 100% vested and nonforfeitable. Upon termination, partial
termination or complete discontinuance of contributions, each Participant's
account or accounts shall become 100% vested and nonforfeitable.

Section 8.5 Increase in Vesting.

         Account balances with respect to which vesting may increase under IRC
Section 411 shall be computed such that at any relevant time an Employee's
vested portion 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 in the account cannot increase.

                                      24



                                    ARTICLE 9

                                 DISTRIBUTIONS

Section 9.1 Retirement.

         A Participant shall be entitled to retire upon his Normal Retirement
Date, or at a later date as provided in Section 2.20. Upon actual retirement of
a Participant, at or after Normal Retirement Date, a benefit of an amount equal
to the entire value credited to his account or accounts, determined in the same
manner as benefits payable to a deceased Participant under Section 9.3(b), shall
be distributed to him as provided in Section 9.5.

Section 9.2 Disability.

         (a) Vesting. In the event of any Participant's Total and Permanent
Disability, the balance in his account shall become fully vested. The Employers
shall direct the Trustees to distribute to such Participant the balance in his
account, which shall be distributed to him as provided in Section 9.5.

         (b) Definition. "Total and Permanent Disability" means a physical or
mental condition of the Participant resulting from a bodily injury or disease or
mental disorder while employed which renders him 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 termination of service and the Participant
must give notice to the Employers of such determination within ninety (90) days
after the Participant receives official notice of the determination from the
Social Security Administration.

Section 9.3 Death.

         (a) In the event of the death of a Participant while employed by the
Employers, his death benefit shall be 100% of his account or accounts at the
time of his death, adjusted as set forth in Section 9.3(b). Such death benefit
shall be distributed to his surviving spouse (or, if there is no surviving
spouse or if the surviving spouse consents, to a designated beneficiary or
beneficiaries, or, if none, to his estate). Consent of the spouse must be in
writing, and such writing must acknowledge the effect of the consent, and such
writing must be witnessed by a plan representative or notary public.

         Upon the death of a Former Participant, the Employers shall direct the
Trustees to distribute the then value of any vested account balance the value of
which had not been distributed to him at the time of death to his surviving
spouse (or, if there is no surviving spouse or if the surviving spouse consents,
to a designated beneficiary or beneficiaries, or, if none, to his estate).
Consent of the spouse must be in writing, and such writing must acknowledge the
effect of the consent, and such writing must be witnessed by a plan
representative or notary public. As used herein, "Former Participant" means any
person who has ceased to be a Participant hereunder because of termination of
employment for any reason other than death.

                                      25



         (b) Within four (4) calendar months after the end of the Fiscal Year
during which the death of any Participant occurs, or as soon as administratively
feasible thereafter, the Trustee in charge of the records shall:

         (1) Credit to the account of such Participant the portion of
      contributions made by the Employers and attributable to the compensation
      earned by the deceased employee Participant up to the date of his death
      and forfeitures, if any, in the Fiscal Year involved in a manner as
      provided in Section 6.3.

         (2) Determine the deceased Participant's share of net income or loss,
      if any, realized by the Trust from the beginning of the Fiscal Year to the
      end of the Fiscal Year in which death occurs and apportion such net income
      or loss, if any, to the account or accounts of the deceased Participant in
      a manner as provided in Section 6.5.

         (c) The Administrative Committee may require such proper proof of death
as such evidence of the right of any person to receive payment of the account
balance of a deceased Participant or Former Participant as the Administrative
Committee may deem desirable. The Administrative Committee's determination of
death and the right of any person to receive payment shall be conclusive.

         (d) Subject to the rights of a surviving spouse as provided in (a),
each Participant shall have the unrestricted right to designate the beneficiary
Or contingent beneficiary to receive his death benefit, if any. Such designation
shall be evidenced by a written instrument filed with the Administrative
Committee, signed by the Participant and bearing the signature of a competent
witness to his signature. Any Participant may at any time revoke his designation
of a beneficiary or change his beneficiary by filing written notice of such
revocation or change with the Administrative Committee.

Section 9.4 Other Termination of Employment.

         In the event of termination of employment by reason of resignation or
by any other reason than for retirement, Total and Permanent Disability or
death, the Participant's distribution shall be limited to an amount equal to the
value of the vested and credited sum in his account or accounts determined as of
the Accounting Date immediately preceding such termination of employment, which
amount shall be distributed as provided in Section 9.5.

         A Participant whose employment with the Employers is terminated for a
reason other than death, retirement, or Total and Permanent Disability, shall be
entitled to 100% of the balance in his account at the date of his termination of
employment, in cash and/or Qualifying Employers' Securities, provided that he
has accumulated seven (7) Years of Service or more with the Employers.

         If such Participant whose employment is terminated for a reason other
than death, retirement, or Total and Permanent Disability has not accumulated
seven (7) Years of Service with the Employers at the date of his termination,
then he shall forfeit that portion of his rights and interest under the Plan and
the Trust Agreement not vested as set forth in Section 8.1, and the unvested
balance in his account at the date of his termination shall be held in the
forfeiture

                                      26


account for subsequent allocation upon maturity. Distribution of vested benefits
shall be made as provided in Section 9.5.

      If, upon termination of employment for any reason other than retirement,
death or Total and Permanent Disability, the then value of the Participant's
account determined in accordance with the schedule in Section 8.1 shall not
exceed $3,500 prior to January 1,1998, or $5,000 on or after January 1, 1998 (or
any other amount as may, by regulations of the Secretary be established as a
maximum amount that may be paid out in such event without the Participant's
consent), then the Administrative Committee shall direct the Trustees to
distribute the value of the vested balance to the Participant as heretofore
provided. An immediate distribution of any benefit shall not be made where the
present value of the nonforfeitable accrued benefit or account balance (taking
into account benefits derived from both Employer and Employee contributions (if
ever permitted)) is in excess of $3,500 prior to January 1, 1998, or $5,000 on
or after January 1,1998, with the consent of the Participant and, when
applicable,, the Participant's spouse. An immediate distribution means the
distribution of any part of the benefit or account balance prior to the later
of age 62 or Normal Retirement Age. If the Participant, upon termination of
employment for any reason other than retirement, death, or Total and Permanent
Disability, does not consent to the payment of all of his account, as provided
above, and if the then value of such account exceeds $3,500 prior to January 1,
1998, or $5,000 on or after January 1, 1998 (or such other amount as may be
prescribed by regulations of the Secretary of the Treasury governing such
payments), then the Administrative Committee shall direct the Trustees to
segregate the benefits, which would otherwise be distributable, from the general
assets of the Trust Fund and pay over such segregated benefits, with accumulated
income, if any, to the Participant at the time he attains normal retirement age.
In the event the Participant dies before reaching retirement age, his segregated
benefits shall be paid to his spouse or beneficiary or beneficiaries as provided
in Section 9.3. The Trustees shall have no other responsibilities with respect
to such accounts.

Section 9.5 Method and Time of Distribution.

      (a) (1) Except as provided in Section 9.4, the distributable value of the
Participant's account or accounts shall be distributed, unless the Participant
elects otherwise, no later than one year after the close of the Plan Year:

            (A) in which the Participant separates from service by reason of the
      attainment of Normal Retirement Age, Total and Permanent Disability, or
      death; or

            (B) which is the fifth Plan Year following the Plan Year in which
      the Participant otherwise separates from service, except that this
      paragraph (B) shall not apply if the Participant is reemployed by the
      Employer before distribution is required to begin under this paragraph
      (B).

        (2) Subsection (a)(l) shall not apply to any shares of Qualifying
   Employers' Securities acquired with the proceeds of an exempt loan until the
   Close of the Plan Year in which such exempt loan is repaid in full.

                                       27


        (3) Unless the Participant elects otherwise, a distribution required
   under subsection (a)(l) shall be in substantially equal periodic payments
   (not less frequently than annually) over a period not longer than the greater
   of:

            (A) five (5) years, or

            (B) in the case of a Participant the balances of whose accounts (to
      the extent of Qualifying Employers' Securities acquired after December 31,
      1986) is in excess of $500,000, five (5) years plus one (1) additional
      year (but not more than five (5) additional years) for each $100,000 or
      fraction thereof by which such balance exceeds $500,000.

   The dollar amounts set forth in paragraph (B), above, shall be adjusted in
   accordance with adjustments prescribed by the Secretary.

        (4) The distributions provided hereunder shall be made in one of the
   following methods:

            (A) One lump payment or distribution; or

            (B) Payments or distributions in equal annual installments, over a
      period not exceeding five (5) years (or the life expectancy of the
      Participant if less), after first having segregated the Participant's
      account or accounts. Dividends, if any, on Qualifying Employers'
      Securities in the segregated account or accounts shall be distributed to
      the Participant at least once a year.

      (b) Distribution will be made totally in cash and/or in the form of whole
shares of Qualifying Employers' Securities, with the value of any fractional
shares paid in cash, provided the Participant shall have a right to demand that
his benefits be distributed in the form of whole shares of Qualifying Employers'
Securities and the value of any fractional shares paid in cash. If the
Qualifying Employers' Securities are not readily tradable on an established
market, then the Participant shall have a right to require that the Employers,
or the Trustees of the Plan by assumption of the rights and obligations of the
Employers, to repurchase the Qualifying Employers' Securities under a fair
valuation formula pursuant to Section 10.1 of the Plan hereafter, as amended. If
the Employers are required to repurchase Qualifying Employers' Securities which
are distributed to the Participant as part of a total distribution, the amount
to be paid for the Qualifying Employers' Securities shall be paid either in lump
sum or in substantially equal periodic payments (not less frequently than
annually) over a period beginning not later than thirty (30) days after the
exercise of a put option to require the Employers to repurchase and not
exceeding five (5) years with adequate security provided and reasonable interest
paid on the unpaid amounts. The term "total distribution" means the distribution
within one (1) taxable year to the recipient of the balance to the credit of the
recipient's account. If the Employers are required to repurchase Qualifying
Employers' Securities as part of an installment distribution, the amount to be
paid for the Qualifying Employers' Securities shall be paid not later than
thirty (30) days after the exercise of a put option to require the Employers to
repurchase. The right to require repurchase shall be provided to the Participant
in the form of a put option for a period of at least sixty (60) days following
the date of distribution of stock of the Employers and, if the put

                                       28


option is not exercised within such 60-day period, for an additional period of
at least sixty (60) days in the following Plan Year.

      (c) Provided, further, that the entire interest of each Participant (i)
shall be distributed not later than the Required Beginning Date, or (ii) 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 (i) the calendar year in which the Participant attains age seventy and
one-half (70-1/2), or (ii) the calendar year in which the Participant retires,
except that clause (ii) shall not apply in the case of a Participant who is a
five percent (5%) owner (as defined in IRC Section 416) 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).

      Where distributions have begun over the life of a 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) and the Participant dies
before his entire interest has been distributed to him, the remaining portion of
such interest, will be distributed at least as rapidly as under the method of
distributions being used as of the date of his death. If a Participant dies
before distributions (as described in the preceding sentence) have begun, the
entire interest of the Participant shall be distributed within five (5) years
after the death of such Participant.

      The last sentence of the preceding paragraph shall not apply if any
portion of the Participant's interest is payable to (or for the benefit of) a
designated beneficiary, such portion will be distributed over the life of such
designated beneficiary (or over a period not extending beyond the life
expectancy of such beneficiary), and such distributions begin not later than one
year after the date of the Participant's death or such later date as the
Secretary may by regulations prescribe. If the designated beneficiary referred
to in this paragraph is the surviving spouse of the Participant, then
distributions shall begin on a date no later than the date on which the
Participant would have attained the age seventy and one-half (70-1/2). If such
surviving spouse dies before payments are required to commence, then this
paragraph shall be applied as if the surviving spouse were the Participant.

      (d) Distributions of Account Values Determined as of October 31, 1993, in
General Employees' Profit Sharing-Retirement Plan Prior to Merger. In the case
of a vested participant who retires or becomes disabled under the Plan, the
accrued benefit payable to such participant and allocable to the value of the
participant's account as of October 31, 1993, immediately prior to merger, if
any, in the General Employees' Profit Sharing-Retirement Plan maintained by the
Employers, or the present value of the participant's account at the time of
distribution if less, shall be in the form of a Qualified Joint and Survivor
Annuity. In the case of a vested participant who dies before the annuity
starting date and who has a surviving spouse, a Qualified Preretirement Survivor
Annuity based on such account value shall be provided to the surviving spouse of
such participant.

                                       29


      The In the case of an unmarried vested participant, such participant shall
have the right to select between taking his retirement or disability benefits
allocable to such account value in the form of an annuity or in a form as set
forth in Subparagraphs (1) or (2) immediately below.

      The distributions made under this Subparagraph (d), if not in the form of
an annuity, shall be made in such one or more of the following methods:

      (1)   One lump payment; or

      (2)   Payments in equal monthly, quarterly, semi-annual or annual
            installments, over a period not exceeding ten (10) years, after
            first having segregated the aggregate amount thereof in a special
            interest bearing account. Interest on the segregated amount shall be
            distributed at least once a year to the person or persons receiving
            the installment distributions. Where more than one person is
            receiving installments, the interest shall be paid to such persons
            in the same proportion as the installment payments are made.

      Any lump sum or installment payments shall be made in the form and manner
prescribed in Subparagraph (b) above.

      Each participant to whom this Subparagraph (d) applies may elect at any
time during the applicable election period to waive the Qualified Joint and
Survivor Annuity form of benefit and may revoke any such election at any time
during the applicable election period. Any waiver of a qualified joint and
survivor annuity or a qualified preretirement survivor annuity shall not be
effective unless: (1) the participant's spouse consents in writing to the
election; (2) the election designates a specific beneficiary, including any
class of beneficiaries or any contingent beneficiaries, which may not be
changed without spousal consent (or the spouse expressly permits designations by
the participant without any further spousal consent); (3) the spouse's consent
acknowledges the effect of the election; and (4) the spouse's consent is
witnessed by a plan representative or notary public. Any consent by a spouse (or
establishment that the consent of a spouse may not be obtained) under the
preceding sentence shall be effective only with respect to such spouse.

      The Administrative Committee shall provide to each participant to whom
this Subparagraph (d) applies, within a reasonable period of time before the
Annuity Starting Date (and consistent with such regulations as the Secretary may
prescribe), a written explanation of

      (1)   the terms and conditions of the Qualified Joint and Survivor
            Annuity,

      (2)   the participant's right to make, and the effect of, an election to
            waive the joint and survivor annuity form of benefit,

      (3)   the rights of the participant's spouse as provided above, and

      (4)   the right to make, and the effect of, a revocation of an election.

                                       30


      A Qualified Joint and Survivor Annuity (or a Qualified Preretirement
Survivor Annuity) will not be provided unless the participant and spouse had
been married throughout the one (1) year period ending on the earlier of

      (1)   the participant's Annuity Starting Date, or

      (2)   the date of the participant's death.

      For purposes of the preceding sentence, if a participant marries within
one (1) year before the Annuity Starting Date, and the participant and the
participant's spouse in such marriage have been married for at least a one (1)
year period ending on or before the date of the participant's death, then such
participant and such spouse shall be treated as having been married throughout
the one (1) year period ending on the participant's Annuity Starting Date.

      Definitions of terms used in this Section 9.5(d) are as follows:

        (1) "Applicable Election Period" means, in the case of an election to
   waive the Qualified Joint and Survivor Annuity form of benefit, the ninety
   (90) day period ending on the Annuity Starting Date.

        (2) "Qualified Joint and Survivor Annuity" means an annuity

            (A) for the life of the participant with a survivor annuity for the
      life of the spouse which is not less than fifty percent (50%) of (and is
      not greater than 100% of) the amount of the annuity which is payable
      during the joint lives of the participant and the spouse, and

            (B) which is the actuarial equivalent of a single annuity for the
      life of the participant.

      Such term also includes any annuity in a form having the effect of an
annuity described in the preceding sentence.

        (3) "Qualified Preretirement Survivor Annuity" means a survivor annuity
   for the life of the surviving spouse of the participant if

            (A) the payments to the surviving spouse under such annuity are not
      less than the amounts which would be payable as a Survivor Annuity under
      the Qualified Joint and Survivor Annuity under the Plan (or the actuarial
      equivalent thereof) if

                  (i) in the case of a participant who dies after the date on
      which the participant attained the Earliest Retirement Age, such
      participant had retired with an immediate Qualified Joint and Survivor
      Annuity on the day before the participant's date of death, or

                                       31


                  (ii) in the case of a participant who dies on or before the
      date on which the participant would have attained the Earliest Retirement
      Age, such participant had

                      a) separated from service on the date of death,

                      b) survived to the Earliest Retirement Age,

                      c) retired with an immediate Qualified Joint and Survivor
            Annuity at the Earliest Retirement Age, and

                      d) died on the day after the day on which such participant
            would have attained the Earliest Retirement Age, and

            (B) under the Plan, the earliest period for which the surviving
      spouse may receive a payment under such annuity is not later than the
      month in which the participant would have attained the Earliest Retirement
      Age under the Plan; and in the case of this defined contribution plan the
      term "Qualified Preretirement Survivor Annuity" means an annuity for the
      life of the surviving spouse the actuarial equivalent of which is fifty
      percent (50%) of the account balance of the participant as of the date of
      death.

        (4) "Vested Participant" means any participant who has a nonforfeitable
   right (within the meaning of IRC Section 411(a)) to any portion of the
   accrued benefit derived from Employer contributions.

        (5) "Annuity Starting Date" means the first day of the first period for
   which an amount is received as an annuity (whether by reason of retirement or
   disability).

        (6) "Earliest Retirement Age" means the earliest date on which, under
   the Plan, the participant could elect to receive retirement benefits.

Section 9.6 Rollover Treatment.

      (a) Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this Section 9.6, 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) Definitions.

        (1) Eligible Rollover Distribution: 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
   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 Distributee's designated
   beneficiary, or for a

                                       32


   specified period of ten years or more; any distribution to the extent such
   distribution is required under IRC Section 401(a)(9); and the portion of any
   distribution that is not includible in loss income (determined without regard
   to the exclusion for net unrealized appreciation with respect to Qualified
   Employer Securities).

        (2) Eligible Retirement Plan: An Eligible Retirement Plan is an
   individual retirement account described in IRC Section 408(a), an individual
   retirement annuity described in IRC Section 408(b), an annuity plan described
   in IRC Section 403(a), or a qualified trust discribed in IRC Section 401(a),
   that accepts the Distributee's Eligible Rollover Distribution. However, in
   the case of an Eligible Rollover Distribution to the surviving spouse, an
   Eligible Retirement Plan is an individual retirement account or individual
   retirement annuity.

        (3) Distributee: A Distributee includes a Participant or Former
   Participant. In addition, the Participant's or Former Participant's surviving
   spouse and the Participant's or Former Participant's spouse or former spouse
   who is the alternate payee under a qualified domestic relations order, as
   defined in IRC Section 414(p), are Distributees with regard to the interest
   of the spouse or former spouse.

        (4) Direct Rollover: A Direct Rollover is a payment by the Plan to the
   Eligible Retirement Plan specified by the Distributee.

      If a distribution is one to which IRC Sections 401(a)(11) and 417 do not
apply, such distribution may commence less than thirty (30) days after the
notice required under Treasury Regulation Section 1.41l(a)-11(c) is given,
provided that:

        (1) 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

        (2) the Participant, after receiving the notice, affirmatively elects a
   distribution.

Section 9.7 Effect of Rehiring.

      (a) Repayment of Distributions . If a Participant has received a
distribution of his vested benefits in accordance with Section 9.4 representing
less than 100% of his accrued benefit and is subsequently rehired, then the
Participant may, but only before he incurs five (5) consecutive one (1) year
Breaks-In-Service commencing after such distribution, repay the amount of the
distribution to the Trustees. (A one (1) year Break-in-Service shall be deemed
to have occurred if, in a Plan year, the Participant shall not have completed
more than 500 Hours of Service with the Employers. For purposes of vesting, a
Break-in-Service shall mean a vesting computation period during which the
Participant does not complete more than 500 Hours of Service.) Upon such
repayment his account will be credited with both the amount distributed and the
amount forfeited at the time of his termination. The permissible sources for
restoration of the forfeited accrued benefit are income (other than income with
respect to securities acquired with the proceeds of an exempt loan) or gain to
the Plan, forfeitures or Employer contribution.

                                       33


It shall be the duty of the Employers to give timely notification to any rehired
Former Participant, if such Former Participant is eligible to make a repayment,
or tender, of his right to make such repayment or tender and of the consequences
of not making such repayment or tender.

      (b) Break-in-Service. A Former Participant will become a Participant
immediately upon returning to the employ of the Employers if such Former
Participant has a nonforfeitable right to all or a portion of the account
balance derived from Employer contributions at the time of termination from
service. A Former Participant who did not have a nonforfeitable right to any
portion of the account balance derived from Employer contributions at the time
of termination from service will receive credit for participation purposes for
Years of Service prior to a Break-in-Service if the number of consecutive one
(1) year Breaks-In-Service is less than the greater of five (5) or the aggregate
number of Years of Service before such break. If such Former Participant's
number of consecutive one year Breaks-In-Service is less than the greater of
five (5) or the aggregate number of Years of Service before such break, then
such Participant shall participate immediately. A Former Participant who had a
nonforfeitable right to all or a portion of the account balance derived from
Employer contributions at the time of the Participant's termination will receive
credit for purposes of vesting for all Years of Service prior to a
Break-in-Service if the Participant completes a Year of Service after returning
to the employ of the Employer. A Former Participant who did not have a
nonforfeitable right to any portion of the account balance derived from Employer
contributions at the time of the Participant's termination will receive credit
for vesting purposes for Years of Service prior to a Break-in-Service if (1) the
Participant completes a Year of Service after returning to the employ of the
Employer, and (2) the number of consecutive one (1) year Breaks-In-Service is
less than the greater of five (5) or the aggregate number of Years of Service
before such Breaks-In-Service.

Section 9.8  Hardship Distributions.

      In case of death or serious injury, illness or impaired health of a
Participant who is 100% vested or of the spouse, a dependent child or other
family members of such Participant, the Administrative Committee may, upon
application of such fully vested Participant, in its discretion direct the
Trustees to make such emergency distributions from his vested account balance to
the Participant as in the judgment of the Administrative Committee is in the
best interest of the Participant.

Section 9.9  Early Distributions Due to Normal Retirement, Death or Disability.

      In the case of terminations due to normal retirement, death or Permanent
and Total Disability, the Administrative Committee in its discretion may begin
distribution of benefits after termination of service and before annual
accountings are made where requested by a retired or disabled Participant or by
the beneficiaries of a deceased Participant.

Section 9.10 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 Trustees and his whereabouts continues to be unknown for a period of five
(5) years, the Administrative

                                       34


Committee may determine that such person has died, and such determination shall
be final and binding on all persons interested under the Plan and the Trust
Agreement. If there is no designated beneficiary or beneficiaries, then the
account of such person shall be forfeited and treated as a forfeiture.

Section 9.11 Diversification of Investments.

      With respect to all qualified Employers' securities acquired after 1986,
each Qualified Participant in the Plan may elect under the provisions of IRC
Section 401(a)(28)(B) within 90 days after the close of each Plan Year in the
Qualified Election Period to direct the Plan as to the investment of at least
25 percent of the Participant's account in the Plan (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 "50 percent" for "25
percent".

      The term "Qualified Participant" means any employee who has completed at
least 10 years of participation under the Plan and has attained age 55.

      The term "Qualified Election Period" means the 5-Plan-Year period
beginning with the Plan Year after the Plan Year in which the Participant
attains age 55 (or, if later, beginning with the Plan Year after the first Plan
Year in which the individual first became a Qualified Participant).

      In the event a Qualified Participant elects to direct the Plan as to the
investment of his account under the provisions of this Section, the Trustees
shall distribute to the Participant the portion of the Participant's account
covered by the election under this Section within 90 days after the period
during which the election may be made.

                                       35


Section 9.12 Cancellations of Accounts.

      If a benefit has been forfeited because the participant or beneficiary
cannot be found, such benefit will be reinstated if a claim is made by the
Participant or beneficiary. Upon any distributions pursuant to the provisions of
the foregoing sections of this Article, the accounts of the Participants with
respect to which full distributions are made shall be cancelled.

Section 9.13 No Benefit Reduction due to Plan Amendment.

      No amendment to the Plan shall reduce or restrict, either directly or
indirectly, the benefit provided any Participant in the Plan prior to the
amendment, unless the Plan amendment satisfies the requirements of IRC Section
412(c)(8) (relating to certain retroactive amendments) and the regulations
thereunder. Furthermore, no amendment to the Plan shall have the effect of
decreasing a Participant's vested interest determined without regard to such
amendment as of the later of the date such amendment is adopted or the date it
becomes effective. For purposes of determining whether or not any Participant's
accrued benefit or account balance is decreased, all the provisions of the Plan
affecting directly or indirectly the computation of accrued benefits or account
balances which are amended with the same adoption and effective dates shall be
treated as one Plan amendment.

Section 9.14 In-Service Distributions.

      Notwithstanding the preceding provisions of this ARTICLE 9 to the
contrary, any Participant in the Plan 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 value credited to his account or accounts in one or
more distribution 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 distribution payment shall be made to the Participant
within ninety (90) days after the end of the Plan Year in which an election is
made to receive a distribution or as soon as administratively feasible
thereafter, and any successive distribution payments shall be made within
similar time periods after the end of the immediately succeeding Plan Year or
Years if more than one (1) distribution payment is made. Distribution of
benefits under this Section shall be subject to and made only with the written
consent of the Participant's spouse, if the Participant is married.

                                       36


            The schedule of distribution payment or payments shall be as
follows:



  Age of Participant at the end of
          the Plan Year in
which an election is made to receive a                          Distribution payment or
            distribution                                       payments shall be made in -
- --------------------------------------              ----------------------------------------------
                                                 
                62                                  Four (4) installments calculated as one-fourth
                                                    (1/4), one-third (1/3), one-half (1/2) and one
                                                    (1) respectively, times the Participant's
                                                    account balance.

                63                                  Three (3) installments calculated as one-third
                                                    (1/3), one-half(l/2) and one (1), respectively,
                                                    times the Participants account balance.

                64                                  Two (2) installments, calculated as one-half
                                                    (1/2) and one (1), respectively, times the
                                                    Participant's account balance.

          65 and older                              One (1) installment of the entire amount in the
                                                    Participant's account balance.


            Distribution of benefits under this Section will be made in cash
and/or in the form of whole shares of Qualifying Employers' Securities, with the
value of any fractional shares paid in cash, provided that the Participant shall
have the same rights of demand and repurchase set forth in Section 9.5(b),
insofar as such rights are applicable. An election for distribution of benefits
pursuant to this Section shall not terminate the Participant's right to
participate in allocations of contributions of cash and/or of Qualifying
Employers' Securities made by the Employers under Section 6.3 of the Plan or to
participate in forfeitures beginning with the Plan Year of election and
thereafter. With respect to the Plan Year of election and the three (3)
succeeding Plan Years, the Participant's account or accounts shall also be
credited or charged with income, losses and expenses under Section 6.5 of the
Plan until the account or accounts are reduced to zero by distribution of the
account balance determined as of the end of each succeeding Plan Year, taking
into account allocations of employers' contributions, forfeitures and income,
losses and expenses of the Plan; such distributions shall be made to the
Participant within ninety (90) days after the close of each successive Plan
Year.

            Notwithstanding this Section 9.14, (1) if a Participant who has
elected in-service distributions pursuant to this Section separates from
service, whether by reason of attaining Normal Retirement Age, Total and
Permanent Disability, death or otherwise, prior to receiving the entire value
credited to his account or accounts, the then distributable value of such
Participant's account or accounts shall be distributed in accordance with
Section 9.5 hereof; and (2) if a Participant who has elected in-service
distributions pursuant to this Section has

                                       37


previously made or subsequently makes an election pursuant to Section 9.11
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 9.11 election and the
amount required to be distributed to him under this Section 9.14 election.

            The amount of each distribution installment paid in accordance with
the preceding schedule shall be calculated by multiplying the Participant's
account balance, determined as of the end of the Plan Year immediately preceding
the installment payment, by the appropriate installment fraction.

                                       38


                                   ARTICLE 10

                                    VALUATION

Section 10.1 Valuation of Qualifying Employers' Securities.

            Shares of Qualifying Employers' Securities shall be purchased, sold
and contributed to the Plan at fair market value. In the event such shares of
stock are traded on a securities exchange, the fair market value for purposes of
a purchase of stock shall be an amount no less than the bid price and no more
than the mean between the bid and asked prices quoted over the counter or on any
national exchange at the time of transaction on the date on which the purchase
is made; for purposes of a sale of stock the fair market value shall be an
amount no less than the mean between the bid and asked prices and no more than
the asked price quoted over the counter or on any national exchange at the time
of transaction on the date on which the sale is made; for purposes of a
contribution of stock by the Employers (whether such contributed stock is newly
issued or treasury stock) the fair market value shall be the mean between the
bid and asked prices quoted over the counter or on any national exchange at the
close on the date on which the contribution is made or at the close on the date
of the last transaction involving Employers' securities.

            Where Qualifying Employers' Securities are purchased or sold by the
Trustees in an unusual or significant block or quantity of shares, particularly
with respect to a purchase or sale involving a private placement, the Trustees
shall make a determination of fair market value in good faith and based on all
relevant factors for determining the fair market value of securities. If
relevant factors such as premiums, discounts or dilution are applicable, the
Trustees may determine value themselves in good faith or may employ a suitable
expert, who customarily makes independent appraisals of stock value and who is
independent of any party to a transaction, to make a determination of value.

            In the event any share of Qualifying Employers' Securities is not
traded on a securities exchange and there is no market for the same, the
Trustees shall employ a suitable expert to determine the value of such stock for
purposes of the transaction in question, which expert shall furnish to the
Trustees an opinion of value as of the date of the transaction.

                                       39


                                   ARTICLE 11

                      SPECIAL PROVISIONS RELATING TO LOANS

Section 11.1 The Trustees may incur a loan or loans on behalf of the Trust in a
manner and under conditions which will cause the loan to be an "exempt loan"
within the meaning of IRC Section 4975(d)(3) and regulations thereunder. Loans
shall be used primarily for the benefit of Participants and their beneficiaries.
The proceeds of each such loan shall be used, within a reasonable time after the
loan is obtained, only to purchase Qualified Employers' Securities, to repay the
loan or to repay any prior loan. Any such loan shall provide for a reasonable
rate of interest, an ascertainable period of maturity and shall be without
recourse against the Plan. Any such loan shall be secured solely by shares of
Qualified Employers' Securities acquired with the proceeds of the loan and
shares of such stock that were used as collateral on a prior loan which was
repaid with the proceeds of the current loan. Such stock pledged as collateral
shall be placed in a Suspense Account and released pursuant to Section 11.2
below as the loan is repaid. Qualified Employers, Securities released from the
Suspense Account shall be allocated in the manner described in Section 6.3. No
person entitled to payment under a loan made pursuant to this Article shall have
recourse against (i) any Trust Fund assets other than the stock used as
collateral for the loan, (ii) Employer 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. Participating Employer
contributions made with respect to any Plan Year during which the loan remains
unpaid, and earnings on such contributions, shall be deemed available to meet
obligations under the loan, unless otherwise provided by the Employer at the
time such contributions are made.

Section 11.2 An exempt loan shall provide for the release from encumbrance of
Plan assets used as collateral for the loan. For each Plan Year during the
duration of the loan, the number of securities released must equal the number of
encumbered securities held 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 year. The denominator of the fraction is the
sum of the numerator plus the principal and interest to be paid for all future
years. The number of future years under the loan must be definitely
ascertainable and must be determined without taking into account any possible
extensions or renewal periods. If the interest rate under the loan is variable,
the interest to be paid in future years must be computed by using the interest
rate applicable as of the end of the Plan Year. If collateral includes more than
one class of securities, the number of securities of each class to be released
for a Plan Year must be determined by applying the same fraction to each class.

Section 11.3 Payments of principal and interest on any loan under this Article
shall be made by the Trustees at the direction of the Administrative Committee
solely from: (i) Employer contributions available to meet obligations under the
loan, (ii) earnings from the investment of such contributions, (iii) earnings
attributable to stock pledged as collateral for the loan, (iv) other dividends
on stock to the extent permitted by law, (v) the proceeds of a subsequent loan
made to repay the loan, and (vi) the proceeds of the same of any stock pledged
as collateral for the loan.

                                       40


The contributions and earnings available to pay the loan must be accounted for
separately by the Administrative Committee until the loan is repaid.

Section 11.4 Subject to the limitations in Section 5.4 on annual additions to a
Participant's account, assets released from a Suspense Account by reason of
payment made on a loan shall be allocated immediately upon such payment to the
accounts of all Participants who then would be entitled to an allocation of
contributions under Section 6.3 if such payment had been made on the last day of
the Plan Year. The assets of the Plan attributable to Qualifying Employers'
Securities acquired by the Plan in a sale to which IRC Section 1042 applies
shall not accrue or be allocated for the benefit of persons specified in IRC
Section 409(n) during the nonallocation period as restricted by Section 5.4(j).

Section 11.5 For purposes of this ARTICLE 11, the term "Suspense Account" means
the account used to reflect Qualified Employers' Securities acquired with loan
proceeds.

Section 11.6 There shall be certain protections and rights provided to
Participants with respect to Plan assets acquired with the proceeds of an exempt
loan. These protections and rights are:

            (a) No security 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) Qualifying Employers' Securities acquired with proceeds of
      an exempt loan may, but need not, be subject to a right of first refusal.
      Securities subject to such right must be stock or an equity security, or a
      debt security convertible into stock or an equity security. Also, the
      securities must not be publicly traded at the time the right may be
      exercised. The right of first refusal must be in favor of the Employers,
      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 value of the security determined under ARTICLE 10 of the
      Plan, 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 must 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 security has been
      received.

                  (2) A Qualifying Employers' Security acquired with the
      proceeds of an exempt loan by the Plan shall be subject to a put option if
      the security is not publicly traded when distributed or if it is subject
      to a trading limitation when distributed. For purposes of this paragraph,
      "trading limitation" on a security is a restriction under any federal or
      state securities law, any regulation thereunder, or an agreement, not
      prohibited by Regulations Section 54.4975-7(b), affecting the security
      which would make the security not as freely tradable as one not subject to
      such restriction. The put option shall be exercisable only by a
      Participant, by the Participant's donees, or by a person (including an
      estate or its distributees) to whom the security passes by reason of a
      Participant's death. (Under this paragraph, "Participant" means a
      Participant and beneficiaries of the Participant under the Plan.) The put
      option shall permit a Participant to put the security

                                       41


      to the Employers. 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 Employers at the time the put option is exercised. If
      it is known at the time a loan is made that federal or state law would be
      violated by the Employers honoring such put option, the put option must
      permit the security to be put, in a manner consistent with such law, to a
      third party (e.g., an affiliate of the Employers or a shareholder other
      than the Plan) that has substantial net worth at the time the 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 security subject to the
            put option is distributed by the Plan. In the case of the security
            that is publicly traded without restriction when distributed but
            ceases to be so traded within fifteen (15) months after
            distribution, the Employers shall notify each security holder in
            writing on or before the tenth day after the date the security
            ceases to be so traded that for the remainder of the 15-month period
            the security is 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 11.6.

                        (B) A put shall be exercised by the holder notifying the
            Employers 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 value of the security, determined under
            ARTICLE 10 of the Plan. 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 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 loan used by the Plan to
            acquire the security subject to the put option are entirely repaid.
            Payment under a put option may be restricted by the terms of a loan,
            including one used to acquire a security subject to a put option.
            Otherwise, payment under a put option shall not be restricted by the
            provisions of a loan or any other arrangement, including the terms
            of the Employers' articles of incorporation, unless so required by
            applicable state law.

Section 11.7 Gross income shall not include fifty (50) percent of the interest
received by a bank, an insurance company, a corporation actively engaged in the
business of lending money or a regulated investment company with respect to a
securities acquisition loan. The term "securities acquisition loan" means -

                                       42


            (a) Any loan to the Employers or to the Plan to the extent that the
proceeds are used to acquire Qualifying Employers' Securities for the Plan, or

            (b) Any loan to the Employers to the extent that, within thirty (30)
days, Qualifying Employers' Securities are transferred to the Plan in an amount
equal to the proceeds of such loan and such securities are allocable to accounts
of Plan Participants within one (1) year of the date of such loan.

            The term "securities acquisition loan" shall not include a loan with
a term greater than fifteen (15) years. The term securities acquisition loan"
shall also not include -

            (c) Any loan made between any of the Employers, or

            (d) Any loan made between the Plan and any person that is the
Employer of any Employees who are covered by the Plan or a member of a
controlled group of corporations which includes such Employer.

            Subparagraphs (c) and (d) shall not apply to any loan which, but for
such subparagraphs, would be a securities acquisition loan if such loan was not
originated by the Employer of any Employees who are covered by the Plan or by
any member of the controlled group of corporations which includes such Employer,
except that this Section shall not apply to any interest received on such loan
during such time as such loan is held by such Employer (or any member of such
controlled group).

            A loan to an Employer shall not fail to be treated as a securities
acquisition loan merely because the proceeds of such loan are lent to the Plan
if such loan includes-

            (e) Repayment terms which are substantially similar to the terms of
the loan of such Employer from a qualified lender, or

            (f) Repayment terms providing for more rapid repayment of principal
or interest on such loan, but only if allocations under the Plan attributable to
such repayment do not discriminate in favor of highly compensated Employees.

            The term "securities acquisition loan" shall include any loan which
is (or is part of a series of loans) used to refinance a loan described in this
Section, and meets the requirements of this Section.

            A loan shall not be treated as a securities acquisition loan for
purposes of this Section unless, immediately after the acquisition or transfer
referred to in (a) or (b) of this Section, respectively, the Plan owns more than
fifty (50) percent of each class of outstanding stock of the corporation issuing
the Employer securities, or the total of all outstanding stock of the
corporation.

            A loan shall not be treated as a securities acquisition loan for
purposes of this Section unless the Plan meets the requirements of IRC Section
409(e)(2) with respect to all Qualifying Employers' Securities acquired by, or
transferred to the Plan in connection with such loan (without regard to whether
or not the Employer has a registration - type class of securities), and

                                       43


no stock described in IRC Section 409(1)(3) (referring to noncallable
convertible preferred stock) is acquired by, or transferred to, the Plan in
connection with such loan unless such stock has voting rights equivalent to the
stock to which it may be converted, and the requirements of subparagraph (a) of
this Section are met with respect to such voting rights.

            In the case of an original securities acquisition loan and any
securities acquisition loan (or series of such loans) used to refinance the
original securities acquisition loan, this Section shall apply only to interest
during the excludable with respect to the original securities acquisition loan.
For purposes of this Section, the term "excludable" means, with respect to any
original securities acquisition loan, the 7-year period beginning on the date of
such loan, or if the term of any original securities acquisition loan described
in subparagraph (a) of this Section is greater than seven (7) years, the terms
of such loan. This subparagraph shall not apply to a loan describe in
subparagraph (f) of this Section. For purposes of this subparagraph, the term
"original securities acquisition loan" means a securities acquisition loan
described in subparagraph (a) or (b) of this Section.

                                       44


                                   ARTICLE 12

                           CLAIMS PROCEDURE AND REVIEW

Section 12.1 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 at any time on or prior to the last day of the Plan
Year next following the Plan Year in which he allegedly became entitled to
receive a distribution of such benefit. Such written claim shall set forth the
Participant's or Beneficiary's name and address and a statement of the facts and
a reference to the pertinent provisions for the Plan upon which such claim is
based. The Administrative Committee shall, within ninety (90) days after such
written claim is filed, provide the claimant with written notice of its decision
with respect to such claim. If such claim is denied in whole or in part, the
Administrative Committee shall, in such written notice to the claimant, set
forth in a manner calculated to be understood by the claimant the specific
reason or reasons for denial; specific references to pertinent provisions of the
Plan upon which the denial is based; a description of any additional material or
information necessary for the claimant to perfect his claim and an explanation
of why such material or information is necessary; and an explanation of the
provisions for review of claims set forth.

Section 12.2 Review of Claims

      A Participant or Beneficiary who has filed a written claim for benefits
with the Administrative Committee which has been denied may appeal such denial
to the Administrative Committee and receive a full and fair review of his claim
by filing with the Administrative Committee a written application for review at
any time within sixty (60) days after receipt from the Administrative Committee
of the written notice of denial of his claim hereinabove provided. A Participant
or Beneficiary who submits a timely written application for review, shall be
entitled to review any and all documents pertinent to his claim and may submit
issues and comments to the Administrative Committee in writing. No later than
sixty (60) days after receipt of a written application for review, the
Administrative Committee shall give the claimant written notice of its decision
on review, which written notice shall set forth in a manner calculated to be
understood by the claimant specific reasons for its decision and specific
references to the pertinent provisions of the Plan upon which the decision is
based.

Section 12.3 Miscellaneous

      Any act permitted or required to be taken by a Participant or Beneficiary
under this ARTICLE 12 may be taken for and on behalf of such Participant or
Beneficiary by such Participant's or Beneficiary's duly authorized
representative.

                                       45


            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.
                225 North 13th Avenue
                Laurel, Mississippi 39440

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 filed by such Participant or Beneficiary.

                                       46


                                   ARTICLE 13

                             TRUST FUND AND TRUSTEES

            The Employers have heretofore entered into a Trust Agreement, and
may amend or restate such Trust Agreement from time to time, with one or more
individuals or with a corporate fiduciary or with a combination of both, under
which such fiduciary or fiduciaries undertake to act as Trustees under this Plan
for the administration of the Trust Fund consisting of contributions made by the
Employers. Such Trust Agreement shall be in such form as the Employers shall
determine and may include, but without limitation, provisions delineating the
powers, duties, and liabilities of the Trustees, establishing the right of the
Employers and the Administrative Committee to approve accounts of the Trustees
on behalf of all persons interested in the Trust and establishing the right of
the Administrative Committee to issue directions binding upon the Trustees as to
the payment of benefits.

            Said Trust Agreement, or amended or restated Trust Agreement, when
executed, shall be deemed to form a part of this Plan and all rights which may
accrue to any person under this Plan shall be subject to the terms of such Trust
Agreement, as amended or restated.

                                       47


                                   ARTICLE 14

                            ADMINISTRATIVE COMMITTEE

Section 14.1 Appointment of Committee.

            The Boards of Directors of the Employers shall appoint the
Administrative Committee consisting of officers or other employees of the
Employers. The Administrative Committee shall be composed of no more than five
(5) members, as determined from time to time by the Boards of Directors. The
Administrative Committee Members shall serve at the pleasure of the Employers,
and vacancies in the Administrative Committee arising by reason of resignation,
death, removal, or otherwise shall be filled by the Boards of Directors of the
Employers. Any Administrative Committee Member may resign of his own accord by
delivering his written resignation to the Employers.

Section 14.2 Powers of Administrative Committee.

            The Administrative Committee shall have the discretionary authority
to determine all questions of eligibility for participation, vesting and benefit
entitlement, in accordance with the terms and provisions hereof, and is
authorized to make such rules and regulations as it may deem necessary to carry
out the provisions of the Plan and to employ counsel, attorneys, accountants,
and such other persons as it shall deem necessary or desirable in executing its
duties under the Plan. The Administrative Committee shall have the discretionary
authority to determine any question arising in the interpretation and
application of the Plan, which determination shall be binding and conclusive on
all persons. Employment shall be determined by the Administrative Committee from
the records of the Employers. The Administrative Committee shall have the
authority and power to direct the Trustees with respect to the voting of stock
allocated to Participants' accounts in accordance with Participants'
instructions or directions and the voting of unallocated stock in accordance
with the discretion of the Administrative Committee. None of the discretionary
authority vested in the Administrative Committee shall be exercised in a
discriminatory manner.

Section 14.3 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 14.4 Expenses of Administrative Committee.

            Unless otherwise determined by the Employers, the Administrative
Committee Members shall serve without compensation for services as such but all
expenses of the Administrative Committee shall be paid by the Employers. Such
expenses shall include any expenses incident to the functioning of the
Administrative Committee, including, but not limited

                                       48


to, salaries of employees, accounting, consulting and legal fees, and other
costs of administering the Plan.

Section 14.5 Indemnity.

            The Employers 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 Committee's 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.

                                       49


                                   ARTICLE 15

                              DOMESTIC AFFILIATE(S)

Section 15.1 Joinder of Plan.

            Any domestic affiliate(s) of the Employers, with the consent of the
Employers, may become a party to this Plan by written declaration of such
election filed with the Trustees and appropriate qualification with federal
administrative authorities. Contributions paid to the Trustees by or on behalf
of each such domestic affiliate(s) joining the Plan and its employees shall
become a part of the Trust Fund created and shall be subject to all the terms
and conditions of this Plan and Trust Agreement.

                                       50


                                   ARTICLE 16

                        MODIFICATIONS FOR TOP HEAVY PLANS

Section 16.1 Application of Article.

            Prior to the allocation of contributions pursuant to Section 6.3,
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 ARTICLE 16 shall be
applicable notwithstanding any other provisions of this Plan to the contrary.

Section 16.2 Definitions.

            (a) Top Heavy Plans: This Plan shall constitute a Top Heavy Plan for
a Plan Year if, as of the last day of the preceding Plan Year (or in the case of
the Plan Year in which occurs the effective date of this Plan, the last day of
such Plan Year) (i) the aggregate of the Participant Accounts of Key Employees
exceeds sixty percent (60%) of the aggregate of the Participant accounts 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 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, exceeds 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 Employers 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 IRC Section
401(a)(4) or IRC Section 410; and, (iii) all plans which the Employers, in their
discretion, decide to include, provided that the inclusion of such plan or plans
would not prevent the group of plans from meeting the qualification requirements
of IRC Section 401 (a) (4) and IRC Section 410.

            (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 Employers having an annual
compensation which exceeds fifty percent (50%) of the amount in effect under
Section 415(b)(l)(A) 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 Employers of more than the
limitation in effect under IRC Section 415(c)(l)(A) and owning (or considered as
owning within the meaning of IRC Section 318) the largest interest in the
Employers, (iii) a five percent (5%) (or greater) owner of the Employers, or
(iv) a one percent (1%) owner of the Employers having an annual compensation
from the Employers of more than $150,000. For the purposes of applying the terms
of the preceding sentence, the provisions of IRC Section 416(i) are incorporated
herein by reference.

                                       51


Section 16.3 Amounts Included for Computation Purposes.

            For the purposes of this Section 16.3, 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 a five (5) year period
ending on the date such determination is made. 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 16.2(b) of this Plan. If an individual has not received any
compensation from any employer maintaining the Plan (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 16.3.

Section 16.4 Accelerated Vesting.

            For any Plan Year in which this Plan is deemed to be a Top Heavy
Plan, the vesting schedule contained in Section 8.1 shall be modified as
follows:



COMPLETED YEARS OF SERVICE              VESTED PERCENTAGE
                                     
             1                                   0%
             2                                  20%
             3                                  40%
             4                                  60%
             5                                  80%
             6                                 100%


If this Plan is not deemed to be a Top Heavy Plan after previously being so
categorized, then the vesting schedule contained in Section 8.1 shall again be
effective except that the vested percentage attained by Participants shall not
be reduced thereby and Participants with five (5) 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 16.5 Minimum Contributions.

            For any Plan Year in which this Plan is determined to be a Top Heavy
Plan, a minimum Employer contribution shall be made, pursuant to 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.

            For the purposes of the first sentence of this Section 16.5, 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 Employee's 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 Employers, for any Key Employee for

                                       52


such Plan Year is less than three percent (3%) of such Key Employee's total
Compensation not in excess of $200,000 or $150,000, whichever is applicable,
then the Employer contribution for each Participant with a Year of Service for
accrual of benefits shall equal the amount which results from multiplying such
Participant's Compensation times the highest contribution rate of any Key
Employee covered by the Plan. In calculating any Key Employee's contribution
rate for the purposes of the preceding sentence, such Key Employee's
Compensation shall exclude amounts in excess of $200,000 or $150,000, whichever
is applicable. For the purposes of this Section 16.5, "$200,000" or "$150,000",
whichever is applicable shall be adjusted in accordance with the cost of living
adjustment procedure of IRC Section 415(d).

                                       53


                                   ARTICLE 17

             AMENDMENT; MERGER, CONSOLIDATION OR TRANSFER OF ASSETS;
                          TERMINATION OR DISCONTINUANCE

Section 17.1 Amendment.

            The Employers 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.
However, no such amendment shall authorize or permit any part of the Trust Fund
(other than such part as is required to pay taxes and administration expenses)
to be used for or diverted to purposes other than for the exclusive benefit of
the Participants or their beneficiaries or estates; no such amendment shall
cause any reduction in the amounts or allocations theretofore credited to any
Participant, or cause or permit any portion of the Trust Fund to revert to or
become the property of the Employers; and no such amendment which affects the
rights, duties or responsibilities of the Trustees may be made without the
Trustees' written consent. Any such amendment shall become effective upon
delivery of a written instrument, executed by order of the Boards of Directors,
to the Trustees and the endorsement of the Trustees of their receipt or of their
written consent thereto, if such consent is required.

            If any amendment changes the vesting schedule, then each Participant
having not less than three (3) Years of Service with the Employers may elect,
within a reasonable period after the adoption of such amendment, to have their
nonforfeitable percentage computed under the Plan without regard to such
amendment.

Section 17.2 Merger, Consolidation, or Transfer of Assets.

            In the case of any merger or consolidation with or transfer of
assets or liabilities to, any other plan, each Participant in the Plan 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 17.3 Termination; Discontinuance of Contributions.

            It is the bona fide intention of the Employers to continue their
contributions to the Trust from year to year as provided herein in substantial
amounts. However, if the Boards of Directors should determine that business
conditions make it inadvisable for the Employers to continue making
contributions as provided herein, then the Boards of Directors shall have the
power permanently to terminate such contributions by appropriate resolutions, or
terminate for any Fiscal Year. A certified copy of such resolutions shall be
delivered to the Administrative Committee and to each of the Trustees.

            As previously provided in Section 8.4, the full value of each
Participant's share of the Trust Fund shall immediately vest in him in the event
that the Employers' agreement to make contributions to the Trust shall be
permanently terminated, whether by amendment to this Plan and the Trust
Agreement, or by bankruptcy, liquidation, or transfer, sale or discontinuance of
the

                                       54


business of the Employers, or by merger, consolidation, or reorganization of the
Employers without the adoption of this Plan and the Trust Agreement within one
hundred eighty (180) days thereafter by such successor corporation or by such
merged, consolidated, or reorganized corporation. Upon permanent termination,
the Trust shall nevertheless continue, and the Trustees are authorized to
continue to hold and administer the vested assets thereof for the benefit of the
Participants whose interests have vested, in the same manner and with the same
powers, rights, and privileges as hereinabove provided. The Trustees may
distribute to the Participants or their beneficiaries their remaining aforesaid
vested shares of Qualifying Employers' Securities immediately, if the
Participants or their beneficiaries so request, or make distributions at some
future dates pursuant to the provisions of ARTICLE 9 of this instrument,
provided that the method or methods of distribution adopted do not discriminate
in favor of employees who are officers, shareholders, supervisors, or Highly
Compensated Employees.

            Until the final distribution of the Trust Fund, the Trustees 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.

Section 17.4 Duration of Trust.

            Regardless of whether the Employers continue to make contributions
to the Trust or not, the Trust shall remain in existence until all of its
principal and income shall have been distributed in Qualifying Employers'
Securities pursuant to the provisions of ARTICLE 9 of this Plan. Upon completion
of such distribution in such securities, the Trust shall finally and completely
terminate.

            If at any time, however, a majority of each of the Boards of
Directors and a majority of the Trustees determine that the Trust should be
terminated, then, upon giving sixty (60) days notice in writing to the
Participants and the Administrative Committee, the Trust shall be terminated as
of the end of its succeeding Fiscal Year; thereupon, the Trustees shall make
final distribution to all of the then Participants of all of the assets and
property in their hands as such Trustees.

                                       55


                                   ARTICLE 18

                                  MISCELLANEOUS

Section 18.1 Nonalienation of Benefits.

            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. 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.

            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 IRC Section 414(p) and Section
18.2 of the Plan.

Section 18.2 Domestic Relations Orders.

            The Administrative Committee shall adhere to the terms of any
judgment, decree or order (including approval of a property settlement
agreement) which relates to the provision of child support, alimony payments or
marital property rights to a spouse, former spouse, child or other dependent of
a Participant and is made pursuant to a state domestic relations law (including
a community property law) and which creates or recognizes the existence of an
alternate payee's right to, or assigns to an alternate payee the right to,
receive all or a portion of the benefits payable with respect to a Participant.

            Any such domestic relations order must clearly specify the name and
last mailing address of the Participant and the name and mailing address of each
alternate payee covered by the order, the amount or percentage of the
Participant's benefit to be paid by the Plan to each such alternate payee, or
the manner in which such amount or percentage is to be determined, the number of
payments or period to which such order applies, and each plan to which such
order applies.

            Any such domestic relations order shall not require the Plan to
provide any type or form of benefit, or any option not otherwise provided under
the Plan, to provide increased benefits (determined on the basis of actuarial
value) or the payment of benefits to an alternate payee which are required to be
paid to another alternate payee under another order previously determined to be
a qualified domestic relations order. Notwithstanding the foregoing sentence, a
domestic relations order may require the payment of benefits to an alternate
payee before the Participant has separated from service on or after the date on
which the Participant attains or would have attained the Earliest Retirement Age
under the Plan as if the Participant had retired on the date on which such
payment is to begin under such order (but taking into account only the present
value of the benefits actually accrued and not taking into account the present
value of any Employer subsidy for early retirement) and in any form in which
such benefits may be paid

                                       56


under the Plan to the Participant (other than the form of a joint and survivor
annuity with respect to the alternate payee and his subsequent spouse). The
interest rate assumption used in determining the present value shall be five
percent (5%). For these purposes, the "Earliest Retirement Age" under the Plan
means the earlier of: (a) the date on which the Participant is entitled to a
distribution under the Plan, or (b) the later of the date the Participant
attains age fifty (50), or the earliest date on which the Participant would
begin receiving benefits under the Plan if the Participant separated from
service.

            To the extent provided in the qualified domestic relations order,
the former spouse of a Participant shall be treated as a surviving spouse of
such Participant for purposes of IRC Sections 401(a)(ll) and 417 (and any spouse
of the Participant shall not be treated as a spouse of the Participant for such
purposes) and if married for at least one (1) year, the surviving former spouse
shall be treated as meeting the requirements of IRC Section 417(d).

            The Administrative Committee shall promptly notify the Participant
and each alternate payee of the receipt of a domestic relations order by the
Plan and the Plan's procedures for determining the qualified status of a
domestic relations order, the Administrative Committee shall determine whether
such order is a qualified domestic relations order and shall notify the
Participant and each alternate payee of such determination. If the Participant
or any affected alternate payee disagrees with the determinations of the , then
the disagreeing party shall be treated as a claimant and the claims procedure of
the Plan shall be followed. The Administrative Committee may bring an action for
a declaratory judgment in a court of competent jurisdiction to determine the
proper recipient of the benefits to be paid by the Plan.

            During any period in which the issue of whether a domestic relations
order is a qualified domestic relations order is being determined (by the , by a
court of competent jurisdiction or otherwise), the Administrative Committee
shall separately account for the amounts which would have been payable to the
alternate payee during such period if the order had been determined to be a
qualified domestic relations order. If, within the eighteen (18) month period
beginning on the date on which the first payment would be required to be made
under the domestic relations order, the order (or modification thereof) is
determined to be a qualified domestic relations order, the Administrative
Committee shall pay the segregated amounts, including any interest thereon, to
the person or persons entitled thereto. If within such eighteen (18) month
period it is determined that the order is not a qualified domestic relations
order or the issue as to whether such order is a qualified domestic relations
order is not resolved, then the Administrative Committee shall pay the
segregated amounts, including any interest thereon, to the person or persons who
would have been entitled to such amounts if there had been no order. Any
determination that an order is a qualified domestic relations order which is
made after the close of the eighteen (18) month period shall be applied
prospectively only.

                                       57


Section 18.3 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 18.4 Delegation of Authority by Employers.

            Whenever the Employers under the terms of this Plan are permitted or
required to do or perform any action or matter or thing, it shall be done and
performed by any of their officers thereunto duly authorized by their Boards of
Directors.

Section 18.5 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 18.6 Legal Actions.

            Except as may be specifically provided for by law, in any action or
proceeding involving this Plan and the Trust, or any property constituting part
or all thereof, or the administration thereof, the Employers and the Trustees
shall be the only necessary parties and no Employees or former Employees of the
Employers or their beneficiaries or any other person having or claiming to have
an interest in the Trust or under this Plan shall be entitled to any notice of
process. Service of process for any actions relating to the Plan and Trust may
be made on the Employers.

            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 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.

Section 18.7 Delays in Distribution.

            Notwithstanding any other provisions of this Plan and the Trust
Agreement, the Trustees may delay distribution to a Participant, his beneficiary
or beneficiaries of shares of Qualifying Employers' 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 Employers from the Securities Exchange
Commission; or

                                       58


            (c) Counsel for the Employers 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 1993 as now in force or
hereafter amended, and are nonrestricted upon transfer.

Section 18.8 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, at the
principal offices of the Employers located at 255 North 13th Avenue, Laurel,
Mississippi 39440,

Section 18.9 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 18.10 Severability.

            Each provision of this Plan may be served. If any provision is
determined to be invalid or unenforceable, that determination shall not affect
the validity or enforceability of any other provision.

Section 18.11 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.

Section 18.12 Multiple Execution.

            This Plan may be executed in any number of counterparts, each of
which shall be an original and no other counterpart need be produced.

                                       59


                                   ARTICLE 19

                      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 IRC Section
414(u).

                                       60


            IN WITNESS WHEREOF, the Employer has caused this Agreement to be
executed on the 22nd day of October, 2002.

                                             SANDERSON FARMS, INC.

                                         By: /s/ ?????
                                             ----------------------
                                         Its: Treasurer & CFO

ATTEST

By: /s/ ?????
    ----------------------

Its: Corporate Controller

                                       61

EX-10.6

                                                                    EXHIBIT 10.6

                              AMENDMENT NUMBER ONE
                                     TO THE
                              SANDERSON FARMS, INC.
                                       AND
                                   AFFILIATES
                          EMPLOYEE STOCK OWNERSHIP PLAN

            THIS AGREEMENT, made and entered into this 22(nd) day of October,
2002, by Sanderson Farms, Inc., a Mississippi corporation herein called the
"Company";

                                    PREAMBLE

1.    Adoption and effective date of amendment. This amendment of the plan is
      adopted to reflect certain provisions of the Economic Growth and Tax
      Relief Reconciliation Act of 2001 ("EGTRRA"). This amendment is intended
      as good faith compliance with the requirements of EGTRRA and is to be
      construed in accordance with EGTRRA and guidance issued thereunder. Except
      as otherwise provided, this amendment shall be effective as of the first
      day of the first plan year beginning after December 31, 2001.

2.    Supersession of inconsistent provisions. This amendment shall supersede
      the provisions of the plan to the extent those provisions are inconsistent
      with the provisions of this amendment.

SECTION 1: Limitations on Contributions

1 Effective date. This section shall be effective for limitation years beginning
after December 31,2001.

2 Maximum annual addition. Except to the extent permitted under Section 6 of
this amendment and section 414(v) of the Code, if applicable, the annual
addition that may be contributed or allocated to a participant's account under
the plan for any limitation year shall not exceed the lesser of:

      a.    $40,000, as adjusted for increases in the cost-of-living under
            section 415(d) of the Code, or

      b.    100 percent of the participant's compensation, within the meaning of
            section 415(c)(3) of the Code, for the limitation year.

The compensation limit referred to in (b) shall not apply to any contribution
for medical benefits after separation from service (within the meaning of
section 401 (h) or section 419A(f)(2) of the Code) which is otherwise treated as
an annual addition.

SECTION 2: Increase in Compensation Limit

The annual compensation of each participant taken into account in determining
allocations for any plan year beginning after December 31, 2001, shall not
exceed $200,000, as adjusted for cost-of-living increases in accordance with
section 401(a)(17)(B) of the Code. Annual compensation means compensation during
the plan year or such other consecutive 12-month

                                       1


period over which compensation is otherwise determined under the plan (the
determination period). The cost-of-living adjustment in effect for a calendar
year applies to annual compensation for the determination period that begins
with or within such calendar year.

SECTION 3: Modification of Top-Heavy Rules

1.Effective date. This section shall apply for purposes of determining whether
the plan is a top-heavy plan under section 416(g) of the Code 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 such years. This
section amends Article 16 of the plan.

2. Determination of top-heavy status.

      2.1 Key employee. Key employee means any employee or former employee
(including any deceased employee) who at any time during the plan year that
includes the determination date was an officer of the employer having annual
compensation greater than $130,000 (as adjusted under section 416(i)(l) 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. For this purpose, annual compensation means compensation
within the meaning of section 415(c)(3) of the Code. The determination of who is
a key employee will be made in accordance with section 416(i)(1) of the Code and
the applicable regulations and other guidance of general applicability issued
thereunder.

      2.2 Determination of present values and amounts. This Section 2.2 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.

      2.2.1 Distributions during 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."

      2.2.2 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 employer during the 1-year period ending on the
determination date shall not be taken into account.

3. Minimum benefits.

      3.1 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

                                       2


purposes of the actual contribution percentage test and other requirements of
section 401(m) of the Code.

SECTION 4: Direct Rollovers of Plan Distributions

1. Effective date. This section shall apply to distributions made after December
31,2001.

2. Modification of definition of eligible retirement plan. For purposes of the
direct rollover provisions in Section 9.6 of the plan, an eligible retirement
plan shall also mean an annuity contract described-in section 403(b) of the Code
and 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. The definition of
eligible retirement plan shall also apply in the case of a distribution to a
surviving spouse, or to a spouse or former spouse who is the alternate payee
under a qualified domestic relation order, as defined in section 414(p) of the
Code.

3. Modification of definition of eligible rollover distribution to exclude
hardship distributions. For purposes of the direct rollover provisions in
Section 9.6 of the plan, any amount that is distributed on account of hardship
shall not be an eligible rollover distribution and the distributee may not elect
to have any portion of such a distribution paid directly to an eligible
retirement plan.


4. Modification of definition of eligible rollover distribution to include
after-tax employee contributions. For purposes of the direct rollover provisions
in Section 9.6 of the plan, a portion of a distribution shall not fail to be an
eligible rollover distribution merely because the portion consist of after-tax
employee contributions which are not includible in gross income. However, such
portion may be 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 410(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 includible in gross
income and the portion of such distribution which is not so includible.

SECTION 5: Rollovers from Other Plans

Direct Rollovers:

The plan will accept a direct rollover of an eligible rollover distribution from
a qualified plan described in section 401(a) or 403(a) of the Code, excluding
after-tax employee contributions; a qualified plan described in section 401(a)
or 403(a) of the Code, including after-tax employee contributions; an annuity
contract described in section 403(b) of the Code, excluding after-tax employee
contributions; and 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.

Participant Rollover Contributions from Other Plans:

The plan will accept a participant contribution of an eligible rollover
distribution from a qualified plan described in section 401(a) or 403(a) of the
Code; an annuity contract described in section 403(b) of the Code; an eligible
plan under section 457(b) of the Code which is maintained by a

                                       3


state, political subdivision of a state, or any agency or instrumentality of a
state or political Subdivision of a state.

SECTION 6: Rollovers Disregarded in Involuntary Cash-Outs

1. Applicability and effective date. This section shall be effective for all
participants for distributions made on and after January 1, 2002.

2. Rollovers disregarded in determining value of account balance for involuntary
distributions. For purposes of Section 9.4 of the plan the value of a
participant's nonforfeitable account balance shall be determined without regard
to that portion of the account balance that is attributable to rollover
contributions (and earnings allocable thereto) within the meaning of sections
402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the Code. If
the value of the participant's noforfeitable account balance as so determined is
$5,000 or less, the plan shall immediately distribute the participant's entire
nonforfeitable account balance.

SECTION 7: Minimum Required Distributions

With respect to distributions under the Plan made for calendar years beginning
on or after January 1, 2001, the Plan will apply the minimum distribution
requirements of section 401(a)(9) of the Internal Revenue Code in accordance
with the regulations under section 401(a)(9) that were proposed on January 17,
2001, notwithstanding any provision of the Plan to the contrary. This amendment
shall continue in effect until the end of the last calendar year beginning
before the effective date of final regulations under section 401(a)(9) or such
other date as may be specified in guidance published by the Internal Revenue
Service.


      IN WITNESS WHEREOF, the Company has caused this instrument to be executed
and its seal to be hereunto affixed and attested, all by its officers thereunto
duly authorized, as of the 22nd day of October, 2002.

                                                  SANDERSON FARMS, INC.

                                          By /s/ ?????
                                             ------------------------

                                          Its Treasurer & CFO

ATTEST:

By /s/ ?????
   ------------------------

Its  Corporate Controller

                                       4

EX-10.7

                                                                    EXHIBIT 10.7

                              AMENDMENT NUMBER TWO
                                     TO THE
                              SANDERSON FARMS, INC.
                                       AND
                                   AFFILIATES
                          EMPLOYEE STOCK OWNERSHIP PLAN

            THIS AGREEMENT, made and entered into this 2nd day of December 2003,
by Sanderson Farms, Inc., a Mississippi corporation herein called the "Company";

            WHEREAS, the Company maintains Sanderson Farms, Inc. and Affiliates
Employee Stock Ownership Plan, as heretofore amended (the "Plan"); and

            WHEREAS, the Company desires to amend the Plan as hereinafter
provided.

            NOW, THEREFORE, pursuant to Section 17.1 of the Plan, the Plan is
hereby amended as follows:

            FIRST: Section 2.3 of the Plan is amended to read as follows:

      Section 2.3 "Annual Additions" means the sum of the following amounts
      credited to a Participant's Accounts and to any accounts of the
      Participant under a Related Plan for any Limitation Year:

            (a)   Employer contributions;

            (b)   Employee contributions;

            (c)   Forfeitures; and

            (d)   Amounts described at Sections 415(1)(1) and 419(A)(d)(2) of
                  the Code.

            Allocations to Participants' accounts of assets withdrawn from the
      unallocated stock account when securities are released from encumbrance
      pertaining to exempt loan transactions shall be included in the
      limitations prescribed in the preceding paragraph of this subsection. For
      purposes of

                                       1


      applying the limitations of IRC Section 415, to such allocations,
      contributions used by the Plan to pay the exempt loan are treated as
      Annual Additions to Participants' accounts.

            SECOND: The reference in the first sentence of Section 2.8 to
"Subparagraph 5.4(i)(6)" is changed to "Section 2.25."

            THIRD: The second and third paragraphs of Section 9.4 of the Plan is
hereby amended to read as follows:

                  A Participant whose employment with the Employers is
      terminated for a reason other than death, retirement, or Total and
      Permanent Disability, when he is fully vested in his account pursuant to
      Section 8.1 of the Plan shall be entitled to 100% of the balance in his
      account at the date of his termination of employment in cash and/or
      Qualifying Employers' Securities.

                  If such Participant whose employment is terminated for a
      reason other than death, retirement, or Total and Permanent Disability is
      not fully vested in his account pursuant to Section 8.1 of the Plan at the
      date of his termination, then he shall forfeit the portion of his rights
      and interest under the Plan and the Trust Agreement that is not vested as
      set forth in Section 8.1. The nonvested balance in the Participant's
      account shall be moved into a suspense account as of the date of the
      Participant's termination of employment and shall be forfeited as of the
      end of the Plan Year in which the Participant's fifth Break-in-Service for
      forfeiture purposes occurs. For the purposes of this paragraph, a
      Break-in-Service for forfeiture purposes shall be a Plan Year in which the
      Employee fails to complete more than 500 Hours of Service with the
      Employers. All amounts which become forfeitures as of the end of a Plan
      Year shall be removed from the suspense account and allocated along with
      the Employers' contribution for that Plan Year in accordance with Section
      6.3 of the Plan.

            FOURTH: Section 9.5(a)(l) of the Plan is hereby amended to read as
follows:

                  (a) (1) Except as provide in Section 9.4, unless a Participant
      otherwise elects, distributions will be made not later than the 60th day
      after the latest of the close of the Plan Year in which occurs:

                  (i) the date on which he attains age 65,

                                       2


                  (ii) the 10th anniversary of the date on which he became a
      Participant, or

                  (iii) his termination of employment with the Employer or a
      Related Employer.

            FIFTH: The first paragraph of Section 9.5(c) of the Plan is hereby
amended by adding thereto, at the end thereof the following new sentence:

      Notwithstanding the above, any Participant (other than a five-percent
      owner) 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.

            SIXTH: Section 9.6(b)(l) of the Plan is hereby amended by adding
thereto, at the end thereof, the following new sentence:

      Notwithstanding the above, effective for distributions on or after January
      1,1999, 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 shall
      not be an Eligible Rollover Distribution and the Distributee may not elect
      to have any portion of such hardship distribution paid directly to an
      Eligible Retirement Plan.

            SEVENTH: Section 9.7 of the Plan is hereby amended to read as
follows:

      Section 9.7 Effect of Rehiring.

                  A Former Participant will become a Participant immediately
      upon returning to the employ of the Employers if such Former Participant
      has a nonforfeitable right to all or a portion of the account balance
      derived from Employer contributions at the time of termination from
      service. A Former Participant who did not have a nonforfeitable right to
      any portion of the account balance derived from Employer contributions at
      the time of termination from service will receive credit for participation
      purposes for Years of Service prior to a Break-in-Service if the number of
      consecutive one (1) year Breaks-In-Service is less than the greater of
      five (5) or the aggregate number of Years of Service before such break. If
      such Former Participant's number of consecutive one year Breaks-In-Service
      is less than the greater of five (5) or the aggregate number of Years of
      Service before such break, then such Participant shall participate

                                       3


      immediately. A Former Participant who had a nonforfeitable right to all or
      a portion of the account balance derived from Employer contributions at
      the time of the Participant's termination will receive credit for purposes
      of vesting for all Years of Service prior to a Break-in-Service if the
      Participant completes a Year of Service after returning to the employ of
      the Employer. A Former Participant who did not have a nonforfeitable right
      to any portion of the account balance derived from Employer contributions
      at the time of the Participant's termination will receive credit for
      vesting purposes for Years of Service prior to a Break-in-Service if (1)
      the Participant completes a Year of Service after returning to the employ
      of the Employer, and (2) the number of consecutive one (1) year
      Breaks-In-Service is less than the greater of five (5) or the aggregate
      number of Years of Service before such Breaks-In-Service.

                  A Former Participant who is rehired and again becomes a
      Participant pursuant to the preceding paragraph and prior to incurring
      five consecutive Breaks-in-Service will have any nonvested balance
      previously removed from the Participant's account maintained for the
      Participant prior to the Participant's earlier termination and moved into
      a suspense account as of the date of the Participant's earlier termination
      of employment pursuant to Section 9.4 above reinstated to the
      Participant's account with vesting of that account computed pursuant to
      the first paragraph of this section and Section 8.1 of the Plan.

                  For purposes of this section, a Break-in-Service shall mean a
      vesting computation period during which the Participant does not complete
      more than 500 Hours of Service.

            EIGHTH: Section 9.8 of the Plan is amended to read as follows:

      Section 9.8 Hardship Distributions

                  A Participant who is fully vested in his account in the Plan
      may make written application to the Administrative Committee to withdraw
      all or part of the Participant's account balance, less prior withdrawals.
      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. For purposes of this Section 9.8, the following will be
      deemed to constitute immediate and heavy financial needs of a Participant:
      Distribution of such withdrawal shall be made to such Participant in a
      lump sum as soon as practicable after such withdrawal is approved by the
      Administrative Committee and shall be charged, as of the date of
      distribution, to such Participant's account.

                                       4


                  Withdrawal from a Participant's account pursuant to the
      provisions of this Section 9.8 shall not exceed the smaller of

            (1) the Participant's account balance; or

            (2) such amount as the Administrative Committee shall deem to be
      necessary or appropriate in light of the special immediate and heavy
      financial need established by the Participant to relieve such immediate
      and heavy financial, including any amounts necessary to pay any federal,
      state, or local income taxes or penalties reasonably anticipated to result
      from such withdrawal.

                  The Administrative Committee shall promulgate (and may from
      time to time amend) rules and regulations prescribing the procedures to be
      followed in requesting such a withdrawal and the circumstances which will
      be deemed to warrant a withdrawal to meet an immediate and heavy financial
      need. For purposes of this Section 9.8, a withdrawal shall be deemed
      warranted to satisfy an immediate and heavy financial need only if the
      Administrative Committee shall determine that the withdrawal is necessary
      to satisfy such immediate and heavy financial need. Determinations of the
      existence of an immediate and heavy financial need and of the amount
      necessary to meet the 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 will 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:

            (a) medical expenses described in Section 213(d) of the Code
      incurred by the Participant, the Participant's spouse, or any dependents
      of the Participant (as defined in Section 152 of the Code) or necessary
      for these persons to obtain medical care described in Section 213(d) of
      the Code;

            (b) purchase (excluding mortgage payments) of a principal residence
      of the Participant;

            (c) payment of tuition for the next semester or quarter of post
      secondary education for the Participant, his or her spouse, children, or
      dependents;

            (d) the need to prevent the eviction of the Participant from his
      principal residence or foreclosure on the mortgage of the Participant's
      principal residence; or

            (e) such other circumstances as the Commissioner of Internal Revenue
      may, through the publication of revenue rulings, notices, and

                                       5


      other documents of general applicability, determine constitute immediate
      and heavy financial needs.

                  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 to the extent 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 Participant's representation that
      the need can not be relieved by the following:

            (f) reimbursement or compensation by insurance or otherwise;

            (g) reasonable liquidation of the Participant's assets, to the
      extent that such liquidation would not itself cause an immediate and heavy
      financial need;

            (h) other distributions or nontaxable (at the time of the loan)
      loans from plans maintained by an Employer or any other employer;

            (i) all plans maintained by the Employer provide that the
      Participant may not make elective contributions for the Participant's
      taxable year immediately following the taxable year of the withdrawal in
      excess of the applicable limit under Section 402(g) of the Code for such
      next taxable year less the amount of such Participant's elective
      contributions for the taxable year of withdrawal; or

            (j) borrowing from commercial sources on reasonable commercial
      terms.

            NINTH: The second and third paragraphs of Section 10.1 are hereby
deleted and the following new paragraph is inserted in lieu thereof:

                  Where Qualifying Employers' Securities are not readily
      tradable on an established securities market, all valuations of Qualifying
      Employers' Securities shall be made by an independent appraiser who meets
      requirements similar to the requirements of the regulations prescribed
      under IRC Section 170(a)(1).

                                       6


            TENTH: The last sentence in Section 16.4 of the Plan is hereby
amended to read as follows:

                  If this Plan is not deemed to be a Top Heavy Plan after
      previously being so categorized, then the vesting schedule contained in
      Section 8.1 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.

            ELEVENTH: The second paragraph of Section 16.5 of the Plan is hereby
amended to read as follows:

                  For the purposes of the first sentence of this Section 16.5,
      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 Employee's 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
      Employers for any Key Employee for such Plan Year is less than three
      percent (3%) of such Key Employee's total Annual Compensation, then the
      Employer contribution for each Participant with a Year of Service for
      accrual of benefits shall equal the amount which results from multiplying
      such Participant's Annual Compensation times the highest contribution rate
      for the purpose of the preceding sentence. For purposes of this Section
      16.5, 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.

            TWELFTH: The amendments made hereby shall be effective as of
November 1, 1997, unless another effective date is specified herein.

            THIRTEENTH: The Plan, as hereinabove amended, shall remain in full
force and effect.

                                       7


            IN WITNESS WHEREOF, the Company has caused this instrument to be
executed and its seal to be hereunto affixed and attested, all by its officers
thereunto duly authorized, as of the 2nd day of December, 2003.

                                                  SANDERSON FARMS, INC.

                                          By /s/ ?????
                                             ---------------------------

                                          Its Trustee of Record

ATTEST:

By /s/ ?????
- --------------------

Its TREASURER & CFO

                                       8

EX-10.8

                                                                    EXHIBIT 10.8

                             AMENDMENT NUMBER THREE
                                     TO THE
                              SANDERSON FARMS, INC.
                                      AND .
                                   AFFILIATES
                          EMPLOYEE STOCK OWNERSHIP PLAN

            THIS AGREEMENT, made and entered into this 11th day of February,
2004, by Sanderson Farms, Inc., a Mississippi corporation herein called the
"Company";

            WHEREAS, the Company maintains Sanderson Farms, Inc. and Affiliates
Employee Stock Ownership Plan, as heretofore amended (the "Plan"); and

            WHEREAS, the Company desires to amend the Plan as hereinafter
provided.

            NOW, THEREFORE, pursuant to Section 17.1 of the Plan, the Plan is
hereby amended as follows:

            FIRST: Section 2.2 of the Plan is hereby deleted.

            SECOND: Article 2 of the Plan is amended by adding thereto the
following new Section 2.30:

      Section 2.30 "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.

            THIRD: The first paragraph of Section 4.1 of the Plan is hereby
amended to read as follows:

                  Any Eligible Employee who has completed one (1) Year of
      Service with the Employers as an Eligible Employee and who has attained
      twenty-one (21) years of age shall be eligible to participate in the Plan
      as of the

                                       1


      Employers' Securities acquired by the Trustees may initially be credited
      to the Unallocated Stock Account, if both general accounts are maintained.
      As of each Valuation Date, Employers' contributions and forfeitures for
      the year, cash dividends received on Qualifying Employers' Securities, if
      any, the interest paid or payable during the year if any part of a loan is
      outstanding, and the shares of Qualifying Employers' Securities released
      from the Unallocated Stock Account, if maintained, shall be allocated
      among Participants' accounts in the following manner:

                  (a) Dividends on shares of Qualifying Employers' Securities
      allocated to Participants' stock accounts at the beginning of the year
      shall be credited to each Participant's account.

                  (b) any forfeitures of Qualifying Employers' Securities and
      any cash forfeitures which have matured during the year shall be allocated
      to Participant' accounts in the manner set forth in Section 6.3.

                  (c) Dividends on Qualifying Employers' Securities held in the
      Unallocated Stock Account, any interest received and any other items of
      income shall be allocated to Participants' accounts in the same ratio that
      the balances in each Participant's separate account or accounts bear to
      the aggregate accounts of all Participants at the beginning of such fiscal
      year, less distributions, if any, made in such year.

                  (d) Each Participant's share of the Employers' contributions
      (in whatever form) shall be credited to Participants' accounts in the
      manner set forth in Section 6.3.

                  (e) Shares of Qualifying Employers' Securities released from
      the Unallocated Stock Account, if maintained, equaling the balance of
      Participants' cash accounts divided by the share price shall be allocated
      to Participants' stock accounts. Additions to the Investment Account, if
      maintained, and Investment Account Income, if any, shall be computed on
      each Valuation Date and each Participant's account shall be credited with
      his share of additions to the Investment Account or Investment Account
      Income in the same ratio that the balances in each Participant's separate
      account or accounts bear to the aggregate accounts of all Participants
      immediately following the preceding Valuation Date, less distributions, if
      any, made since such Valuation Date. Investment Account Income is the net
      increase or decrease during the year attributable to its income and
      expenses, gains and losses whether or not realized in the Investment
      Account.

                                       4


            TENTH: Section 6,8 of the Plan is hereby amended to read as follows:

      Section 6.8 Annual Statements.

                  On or before the expiration of four (4)' calendar months after
      each Valuation Date which is as of the end of a Plan Year, or as soon as
      administratively feasible thereafter, the Administrative Committee shall
      upon information furnished by the Trustees, or the Trustees shall upon
      direction of the Administrative Committee, make reports to each
      Participant as of the Valuation Date, and the Valuation Date immediately
      preceding showing the balances in all of each Participant's account or
      accounts.

            ELEVENTH: Section 7.2 and Section 9,4 of the Plan are hereby amended
by deleting therefrom the term "Accounting Date" and substituting in lieu
thereof the term "Valuation Date."

            TWELFTH: The first paragraph of Section 8.3 of the Plan is hereby
amended to read as follows;

                  In the event of termination of a Participant's employment by
      reason of resignation or by any reason other than retirement at or after
      his normal retirement date, death or Total and Permanent Disability, the
      nonvested portion of the amount credited to his account shall be forfeited
      as provided in Section 9.4. As of the Valuation Date which is as of the
      end of a Plan Year, the Trustee in charge of the records shall allocate
      among the Participants' accounts any account balances forfeited under this
      Section 8.3 which have become available for forfeiture during the Plan
      Year then ending, This allocation shall be made in the same ratio as
      Employer contributions are allocated pursuant to Section 6.3.

                                       5


            THIRTEENTH: The amendments made hereby shall be effective as of
November 1, 1997, unless another effective date is specified herein.

            FOURTEENTH: The Plan, as hereinabove amended, shall remain in full
force and effect.

            IN WITNESS WHEREOF, the Company has caused this instrument to be
executed and its seal to be hereunto affixed and attested, all by its officers
thereunto duly authorized, as of the 11th day of February, 2004.

                                                  SANDERSON FARMS, INC.

                                          By /s/ ?????
                                             --------------------------

                                          Its Treasurer & CFO
ATTEST:

By /s/ ?????
   ---------------------

Its Director of Org. Dev.

                                       6

EX-10.9

                                                                    EXHIBIT 10.9

                               AMENDMENT NO. FOUR
                                     TO THE
                              SANDERSON FARMS, INC.
                                       AND
                                   AFFILIATES
                          EMPLOYEE STOCK OWNERSHIP PLAN

            THIS AGREEMENT, effective as of January 1, 2003, by SANDERSON FARMS,
INC., a Mississippi corporation (the "Company");

                                   WITNESSETH:

            WHEREAS, the Employer has adopted and maintains the "Sanderson
Farms, Inc. and Affiliates Employee Stock Ownership Plan" as heretofore amended
and restated as of November 1, 1997 (the "Plan"); and

            WHEREAS, the Employer desires to further amend the Plan to comply
with final and temporary regulations under Section 401(a)(9) of the Internal
Revenue Code, relating to required minimum distributions, as herein provided;

            NOW, THEREFORE, pursuant to the provisions of Section 17.1 of the
Plan, the Plan is hereby amended as follows:

            FIRST: The Plan is hereby amended by adding thereto the following
new Article 20, Minimum Distribution Requirements:

                                   ARTICLE 20

                        MINIMUM DISTRIBUTION REQUIREMENTS

Section 1. General Rules.

1.1. Effective Date. The provisions of this Article 20 will apply for purposes
of determining required minimum distributions for calendar years beginning with
the 2003 calendar year,

                                       1


1.2. Precedence. The requirements of this article will take precedence over any
inconsistent provisions of the Plan.

1.3. Requirements of Treasury Regulations Incorporated. All distributions
required under this article will be determined and made in accordance with the
Treasury regulations under section 40l(a)(9) of the Internal Revenue Code.

1.4. TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of
this article, distributions may be made under a designation made 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 2. Time and Manner of Distribution

2.1. Required beginning date. The Participant's entire interest will be
distributed, or begin to be distributed, to the Participant no later than the
Participant's required beginning date which for Plan Years commencing after
October 30, 1999 shall be:

            (a)   For a Participant who is a 5% owner (as defined in Code
                  Section 416), the required beginning date is April 1 following
                  the calendar year in which the Participant attains age 70-1/2.

            (b)   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.

2.2. Death of Participant Before Distributions Begin. If the Participant dies
before distributions begin, the Participant's entire interest will be
distributed, or begin to be distributed, no later than as follows:

            (a)   If the Participant's surviving spouse is the Participant's
                  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.

            (b)   If the Participant's surviving spouse is not the Participant's
                  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.

                                       2


            (c)   If there is no designated beneficiary as of September 30 of
                  the year following the year of the Participant's death, the
                  Participant's entire interest will be distributed by December
                  31 of the calendar year containing the fifth anniversary of
                  the Participant's death.

            (d)   If the Participant's surviving spouse is the Participant's
                  sole designated beneficiary and the surviving spouse dies
                  after the Participant but before distributions to the
                  surviving spouse begin, this section 2.2, other than section
                  2.2(a), will apply as if the surviving spouse were the
                  Participant.

      For purposes of this section 2.2 and section 4, unless section 2.2(d)
      applies, distributions are considered to begin on the Participant's
      required beginning date. If section 2.2(d) applies, distributions are
      considered to begin on the date distributions are required to begin to the
      surviving spouse under section 2.2(a). If distributions under an annuity
      purchased from an insurance company irrevocably commence to the
      Participant before the Participant's required beginning date (or to the
      Participant's surviving spouse before the date distributions are required
      to begin to the surviving spouse under section 2.2(a)), the date
      distributions are considered to begin is the date distributions actually
      commence.

2.3. Forms of Distribution. Unless the Participant's 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 3 and 4 of this
article. If the Participant's 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.

Section 3. Required Minimum Distributions During Participant's Lifetime.

3.1. Amount of Required Minimum Distributions For Each Distribution Calendar
Year. During the Participant's lifetime, the minimum amount that will be
distributed for each distribution calendar year is the lesser of:

            (a)   the quotient obtained by dividing the Participant's account
                  balance by the distribution period in the Uniform Lifetime
                  Table set forth in section 1.401(a)(9)-9 of the Treasury
                  regulations, using the Participant's age as of the
                  Participant's birthday in the distribution calendar year; or

            (b)   if the Participant's sole designated beneficiary for the
                  distribution calendar year is the Participant's spouse, the
                  quotient obtained by dividing the Participant's account
                  balance by the number in the Joint and Last Survivor Table sel
                  forth in section 1.401(a)(9)-9 of the Treasury regulations,
                  using the Participant's and spouse's attained ages as of the
                  Participant's and spouse's birthdays in the distribution
                  calendar year.

                                       3


 3.2. Lifetime Required Minimum Distributions Continue Through Year of
 Participant's Death. Required minimum distributions will be determined under
 this section 3 beginning with the first distribution calendar year and up to
 and including the distribution calendar year that includes the Participant's
 date of death.

Section 4. Required Minimum Distributions After Participant's Death.

4.1. Death On or After Date Distributions Begin.

            (a)   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 Participant's death is the quotient obtained
                  by dividing the Participant's account balance by the longer of
                  the remaining life expectancy of the Participant or the
                  remaining life expectancy of the Participant's designated
                  beneficiary, determined as follows:

                  (1)   The Participant's remaining life expectancy is
                        calculated using the age of the Participant in the year
                        of death, reduced by one for each subsequent year.

                  (2)   If the Participant's surviving spouse is the
                        Participant's sole designated beneficiary, the remaining
                        life expectancy of the surviving spouse is calculated
                        for each distribution calendar year after the year of
                        the Participant's death using the surviving spouse's age
                        as of the spouse's birthday in that year. For
                        distribution calendar years after the year of the
                        surviving spouse's death, the remaining life expectancy
                        of the surviving spouse is calculated using the age of
                        the surviving spouse as of the spouse's birthday in the
                        calendar year of the spouse's death, reduced by one for
                        each subsequent calendar year.

                  (3)   If the Participant's surviving spouse is not the
                        Participant's sole designated beneficiary, the
                        designated beneficiary's remaining life expectancy is
                        calculated using the age of the beneficiary in the year
                        following the year of the Participant's death, reduced
                        by one for each subsequent year.

            (b)   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 Participant's death, the minimum amount that will be
                  distributed for each distribution calendar year after the year
                  of the Participant's death is the quotient obtained by
                  dividing the Participant's account balance by

                                       4


                  the Participant's remaining life expectancy calculated using
                  the age of the Participant in the year of death, reduced by
                  one for each subsequent year.

4.2. Death Before Date Distributions Begin.

            (a)   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 Participant's death is the quotient obtained by
                  dividing the Participant's account balance by the remaining
                  life expectancy of the Participant's designated beneficiary,
                  determined as provided in section 4.1.

            (b)   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 Participant's death, distribution of the Participant's
                  entire interest will be completed by December 31 of the
                  calendar year containing the fifth anniversary of the
                  Participant's death.

            (c)   Death of Surviving Spouse Before Distributions to Surviving
                  Spouse Are Required to Begin. If the Participant dies before
                  the date distributions begin, the Participant's surviving
                  spouse is the Participant's sole designated beneficiary, and
                  the surviving spouse dies before distributions are required to
                  begin to the surviving spouse under section 2.2(a), this
                  section 4.2 will apply as if the surviving spouse were the
                  Participant.

Section 5. Definitions.

5.1. Designated Beneficiary. The individual who is designated as the beneficiary
under Section 9.3 of the Plan and is the designated beneficiary under section
401(a)(9) of the Internal Revenue Code and section 1.401(a)(9)-l, Q&A-4, of the
Treasury regulations.

5.2. Distribution calendar year. A calendar year for which a minimum
distribution is required. For distributions beginning before the Participant's
death, the first distribution calendar year is the calendar year immediately
preceding the calendar year which contains the Participant's required beginning
date. For distributions beginning after the Participant's death, the first
distribution calendar year is the calendar year in which distributions are
required to begin under section 2.2. The required minimum distribution for the
Participant's first distribution calendar year will be made on or before the
Participant's 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 Participant's required beginning
date occurs, will be made on or before December 31 of that distribution calendar
year.

5.3. Life expectancy. Life expectancy as computed by use of the Single Life
Table in section 1.401(a)(9)-9 of the Treasury regulations.

                                       5


5.4. Participant's 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.

5.4. Required beginning date. The date specified in section 2.1 of this Article.

            SECOND: The amendment made hereby shall not eliminate or reduce any
early retirement benefit or retirement type subsidy (as defined in regulations
promulgated by the Secretary of the Treasury) or eliminate an optional form of
benefit with respect to benefits attributable to service before the date hereof.

            THIRD: The Plan as hereby amended shall continue in full force and
effect.

            IN WITNESS WHEREOF, Sanderson Farms, Inc. has caused this instrument
to be executed and attested, all by officers thereunto duly authorized.

                                                    SANDERSON FARMS, INC.

                                          By  /s/ ?????
                                              ----------------

                                          Its
ATTEST:                                       ----------------

By /s/ ?????
   ------------------

Its ?????

                                       6

EX-10.10

                                                                   EXHIBIT 10.10

                               AMENDMENT NO. FIVE
                                     TO THE
                              SANDERSON FARMS, INC.
                                       AND
                                   AFFILIATES
                          EMPLOYEE STOCK OWNERSHIP PLAN

            THIS AGREEMENT, effective as of March 28, 2005, by SANDERSON FARMS,
INC., a Mississippi corporation (the "Company");

                                   WITNESSETH:

            WHEREAS, the Employer has adopted and maintains the "Sanderson
Farms, Inc. and Affiliates Employee Stock Ownership Plan" as heretofore amended
and restated as of November 1, 1997 (the "Plan"); and

            WHEREAS, the Employer desires to further amend the Plan to comply
with Section 401(a)(31)(B) of the Internal Revenue Code, relating to mandatory
rollover distributions, as herein provided;

            NOW, THEREFORE, pursuant to the provisions of Section 17.1 of the
Plan, the Plan is hereby amended as follows:

            FIRST: Section 9.4 of the Plan is hereby amended by adding thereto,
at the end thereof, the following:

            The provisions of this Section 9.4 of the Plan that provide for the
            involuntary distribution of vested accrued benefits of $5,000 or
            less are modified so that the $5,000 threshold in such provisions is
            reduced to $1,000 and the value of the Participant's interest in the
            Plan for such purpose shall include any rollover contributions (and
            earnings thereon) within the meaning of Code Sections 402(c),
            403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16).

                                       1


            SECOND: The amendment made hereby shall not eliminate or reduce any
early retirement benefit or retirement type subsidy (as defined in regulations
promulgated by the Secretary of the Treasury) or eliminate an optional form of
benefit with respect to benefits attributable to service before the date hereof.

            THIRD: The Plan as hereby amended shall continue in full force and
effect.

            IN WITNESS WHEREOF, Sanderson Farms, Inc. has caused this instrument
to be executed and attested, all by officers thereunto duly authorized.

                                                   SANDERSON FARMS, INC.

                                          By /s/
                                             ---------------

                                          Its Treasurer & CFO

ATTEST:

By /s/
   -----------------

Its ?????

                                       2

EX-23

Exhibit 23

            Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-67474 and Form S-8 No. 333-92412) pertaining to the Sanderson
Farms, Inc. and Affiliates Stock Option Plan and the Registration Statement
(Form S-8 No. 333-123099) pertaining to the Sanderson Farms, Inc. and
Affiliates Stock Incentive Plan of our reports dated December 22, 2005, with
respect to the consolidated financial statements and schedule of Sanderson
Farms, Inc., Sanderson Farms, Inc. management's assessment of the effectiveness
of internal control over financial reporting and the effectiveness of internal
control over financial reporting of Sanderson Farms, Inc., included in the
Annual Report (Form 10-K) for the year ended October 31, 2005.

                                               /s/ Ernst & Young LLP

New Orleans, Louisiana
December 28, 2005

EX-31.1

                                                                    EXHIBIT 31.1

                                  CERTIFICATION

I, Joe F. Sanderson, Jr., certify that:

1.    I have reviewed this annual report on Form 10-K of Sanderson Farms, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and have:

      (a)   Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

      (b)   Designed such internal control over financial reporting, or caused
            such internal control over financial reporting to be designed under
            our supervision, to provide reasonable assurance regarding the
            reliability of financial reporting and the preparation of financial
            statements for external purposes in accordance with generally
            accepted accounting principles;

      (c)   Evaluated the effectiveness of the registrant's disclosure controls
            and procedures and presented in this report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this report based on such
            evaluation; and

      (d)   Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

5.    The registrant's other certifying officer(s) and I have disclosed, based
      on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of
      registrant's board of directors (or persons performing the equivalent
      functions):

      (a)   All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the registrant's ability to
            record, process, summarize and report financial information; and



      (b)   Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

December 29, 2005

                                               /s/ Joe F. Sanderson, Jr.
                                               ---------------------------------
                                               Chief Executive Officer
                                               and Chairman of the Board
                                               (Principal Executive Officer)

EX-31.2

                                                                    EXHIBIT 31.2

                                  CERTIFICATION

I, D. Michael Cockrell, certify that:

1.    I have reviewed this annual report on Form 10-K of Sanderson Farms, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and have:

      (a)   Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

      (b)   Designed such internal control over financial reporting, or caused
            such internal control over financial reporting to be designed under
            our supervision, to provide reasonable assurance regarding the
            reliability of financial reporting and the preparation of financial
            statements for external purposes in accordance with generally
            accepted accounting principles;

      (c)   Evaluated the effectiveness of the registrant's disclosure controls
            and procedures and presented in this report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this report based on such
            evaluation; and

      (d)   Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

5.    The registrant's other certifying officer(s) and I have disclosed, based
      on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of
      registrant's board of directors (or persons performing the equivalent
      functions):

      (a)   All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the registrant's ability to
            record, process, summarize and report financial information; and



      (b)   Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

December 29, 2005

                                          /s/ D. Michael Cockrell
                                          -------------------------------------
                                          Treasurer and Chief Financial Officer
                                          (Principal Financial Officer)

EX-32.1

                                                                    EXHIBIT 32.1

                            CERTIFICATION PURSUANT TO
                                 18 U.S.C. 1350

In connection with the Annual Report of Sanderson Farms, Inc. (the "Company") on
Form 10-K for the year ended October 31, 2004 (the "Report"), I, Joe F.
Sanderson, Jr., Chairman and Chief Executive Officer of the Company, certify
that:

     (1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

/s/Joe F. Sanderson, Jr.
- ------------------------------------------
Joe F. Sanderson, Jr.
Chairman and Chief Executive Officer
December 29, 2005

EX-32.2

                                                                    EXHIBIT 32.2

                            CERTIFICATION PURSUANT TO
                                 18 U.S.C. 1350

In connection with the Annual Report of Sanderson Farms, Inc. (the "Company") on
Form 10-K for the year ended October 31, 2004 (the "Report"), I, D. Michael
Cockrell, Treasurer and Chief Financial Officer of the Company, certify that:

     (1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

/s/D. Michael Cockrell.
- ------------------------------------------
D. Michael Cockrell
Treasurer and Chief Financial Officer
December 29, 2005