<PAGE>
SMITHFIELD FOODS, INC.
SMITHFIELD, VIRGINIA 23430
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 31, 1994
As a stockholder of SMITHFIELD FOODS, INC. (the "Company"), you are
cordially invited to be present, either in person or by proxy, at the Annual
Meeting of Stockholders of the Company to be held at the Omni Richmond Hotel,
100 South 12th Street, Richmond, Virginia at 2:00 p.m., local time, on August
31, 1994 for the following purposes:
1. To elect a Board of 12 directors of the Company to serve until the
next Annual Meeting or until their successors are duly elected and
qualified;
2. To approve the amendment and restatement of the Company's 1992
Stock Incentive Plan;
3. To approve an amendment to the Company's 1984 Stock Option Plan;
4. To approve the Company's Incentive Bonus Plan;
5. To ratify the selection of Arthur Andersen & Co. as independent
public accountants of the Company for the fiscal year ending April 30,
1995; and
6. To transact such other business as may properly come before the
meeting.
By resolution of the Board of Directors, July 15, 1994 is the record date
for the determination of stockholders entitled to vote at the meeting, and only
stockholders of record at the close of business on that date will be entitled to
vote at the meeting and any adjournments thereof.
We hope you can attend the meeting in person. However, even if you plan to
attend, we urge that you MARK, SIGN, DATE and RETURN the enclosed proxy promptly
in the enclosed self-addressed envelope, so that we may be assured of a quorum
to transact business. The proxy is revocable and will not affect your right to
vote in person in the event you are able to attend the meeting.
Your attention is directed to the attached Proxy Statement.
By Order of the Board of Directors,
Aaron D. Trub
SECRETARY
Smithfield, Virginia
July 29, 1994
<PAGE>
SMITHFIELD FOODS, INC.
EXECUTIVE OFFICES
501 NORTH CHURCH STREET
SMITHFIELD, VIRGINIA 23430
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 31, 1994
This proxy statement is furnished in connection with the solicitation of
proxies by the issuer, Smithfield Foods, Inc. (hereinafter called the
"Company"), and its Board of Directors for use at the Annual Meeting of
Stockholders to be held at 2:00 p.m., local time, on August 31, 1994, and at any
adjournments thereof (the "Meeting").
The expense of this solicitation will be borne by the Company. In addition
to the use of the mails, proxies may be solicited, personally or by telephone,
by regular employees of the Company. The Company will reimburse brokers and
other persons holding stock in their names as nominees for their expenses in
obtaining authorization to execute proxies for their principals. Corporate
Communications, Inc. has been retained to aid in such solicitation of proxies at
an anticipated cost to the Company of $3,500 plus expenses.
Any proxy given pursuant to this solicitation may be revoked by the filing
with and receipt by the Secretary of the Company of a written revocation or duly
executed proxy bearing a later date and does not preclude the stockholder from
voting in person at the Meeting if he or she so desires. The persons named in
the form of proxy solicited by the Board of Directors will vote all proxies
which have been properly executed. If a stockholder specifies on such proxy a
choice with respect to the proposal to be acted upon, the proxy will be voted in
accordance with such specification. Where no choice is specified, the proxy will
be voted for the election of the nominees for director named herein and for
proposals 2, 3, 4 and 5.
The approximate date on which this proxy statement and the accompanying
proxy were first sent or given to stockholders was July 29, 1994.
VOTING SECURITIES
The only class of outstanding voting securities of the Company is its
Common Stock, par value $.50 per share (the "Common Stock"). Stockholders of
record at the close of business on July 15, 1994 will be entitled to vote at the
Meeting. On that date, the Company had outstanding 16,284,026 shares of Common
Stock. Each share of Common Stock is entitled to one vote at the Meeting. Voting
rights of the Common Stock are noncumulative, so that holders of a majority of
the outstanding shares represented at the Meeting can elect all of the
directors.
Presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Meeting will
constitute a quorum. Except for the election of directors, approval of each
matter to be considered at the Meeting will require the affirmative vote of the
holders of at least a majority of the shares of outstanding Common Stock
represented at the Meeting, in person or by proxy, and entitled to vote on the
matter. Shares for which the holder has elected to abstain or has withheld
authority to vote (including broker
1
<PAGE>
non-votes) on a matter will count toward a quorum but will have different
effects on the outcome of the vote on such matter. An abstention from voting on
a matter (other than the election of directors) has the same legal effect as a
vote "against" the matter, even though the stockholder may interpret such action
differently. A "broker non-vote" is a vote withheld by a broker on a particular
matter in accordance with stock exchange regulations because the broker has not
received instructions from the customer for whose account the shares are held.
Under applicable Delaware law, broker non-votes on a matter will have no effect
on the outcome of the vote. With respect to the election of directors, the 12
nominees receiving the greatest number of votes cast for the election of
directors will be elected.
PRINCIPAL STOCKHOLDERS
The only persons known by the Company to own beneficially more than 5% of
the Company's Common Stock as of July 15, 1994 are:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
NAME AND ADDRESS OF (NUMBER OF SHARES)(1)
BENEFICIAL OWNER DIRECT OTHER TOTAL PERCENT OF CLASS
<S> <C> <C> <C> <C>
Joseph W. Luter, III 1,661,236 825,032(2) 2,486,268(2) 14.8%
Smithfield Foods, Inc.
501 North Church Street
Smithfield, VA 23430
Carroll's Swine 2,123,000 -- 2,123,000(3) 13.0%
Investment Partnership
P.O. Drawer 856
Warsaw, NC 28398
The Clark Estates, Inc. 1,413,000 -- 1,413,000(4) 8.7%
30 Wall Street
New York, NY 10005
</TABLE>
(1) Pursuant to current regulations of the Securities and Exchange
Commission, securities must be listed as "beneficially owned" by a person who
directly or indirectly has or shares the power to vote ("voting power") or the
power to dispose of ("dispositive power") the securities, whether or not the
person has any economic interest in the securities. In addition, a person is
deemed a beneficial owner if he has the right to acquire beneficial ownership
within 60 days, whether upon the exercise of a stock option or warrant,
conversion of a convertible security or otherwise. Shares of Common Stock listed
under the "Direct" column are those which are owned and held as outstanding
shares and over which such person, except as noted below, has sole voting power
and sole investment power. Shares shown under the "Other" column are those
subject to other forms of deemed "beneficial ownership" pursuant to the
aforesaid regulations, as described in the indicated footnotes.
(2) Includes 325,032 shares owned by a corporation of which Mr. Luter is an
officer, director and the owner of 81% of its capital stock, and 500,000 shares
which Mr. Luter has the right to acquire pursuant to the exercise of presently
exercisable stock options. Mr. Luter has sole voting power and sole dispositive
power with respect to the 325,032 shares owned by the corporation. Mr. Luter may
be deemed a control person of the Company.
(3) Carroll's Swine Investment Partnership is a North Carolina partnership
between Carroll's Foods, Inc. and Carroll's Foods of Virginia, Inc. F. J.
Faison, Jr., a director of the Company, is an officer and director of Carroll's
Foods, Inc. and Carroll's Foods of Virginia, Inc., but is not a stockholder of
either corporation. Mr. Faison disclaims beneficial ownership of the shares
owned by Carroll's Swine Investment Partnership.
2
<PAGE>
(4) The Clark Estates, Inc. provides administrative assistance to numerous
trust and fiduciary accounts which beneficially own an aggregate 1,413,000
shares of the Company's Common Stock. The Clark Estates, Inc. has or, in certain
instances, shares, voting power and/or dispositive power with respect to such
shares. The Clark Estates, Inc. has no remainder or other economic interest in
such trust or fiduciary accounts.
PROPOSAL 1
ELECTION OF DIRECTORS
All of the nominees for election to the Board of Directors but William H.
Prestage are currently directors and were elected at the last Annual Meeting of
Stockholders. The persons elected will hold office as directors of the Company
until the next Annual Meeting of Stockholders and until their successors are
elected and qualified. It is expected that each of the nominees will be able to
serve, but in the event that any such nominee is unable to serve for any reason,
the shares represented by properly executed proxies may be voted at the
discretion of the persons named therein for a substitute nominee or nominees.
The following table sets forth the names, ages, principal occupations of
the nominees and other information with respect to them as of July 15, 1994:
<TABLE>
<CAPTION>
NAME -- AGE -- PRINCIPAL OCCUPATION -- OTHER INFORMATION DIRECTOR SINCE
<S> <C>
Joseph W. Luter, III (55) 1975
Chairman of the Board, President and Chief Executive Officer of the Company
F. J. Faison, Jr. (60) 1991
President, Carroll's Foods, Inc., Warsaw, North Carolina, a hog and turkey producer
Joel W. Greenberg (56) 1987
Commodity Analyst, Alaron Trading Corporation, Chicago, Illinois, a commodities brokerage firm
Cecil W. Gwaltney (83) 1971
Chairman of the Board, Gwaltney Motor Company, Smithfield, Virginia
George E. Hamilton, Jr. (78) 1970
Retired; President and Chief Operating Officer of The Smithfield Packing Company, Incorporated
("Smithfield Packing"), a wholly-owned subsidiary of the Company, prior to June 1994
Richard J. Holland (68) 1978
Chairman of the Board, The Farmers Bank, Windsor, Virginia; Director, Dibrell Brothers, Inc.
Roger R. Kapella (52) 1992
President and Chief Operating Officer of Patrick Cudahy Incorporated ("Patrick Cudahy"), a
wholly-owned subsidiary of the Company
Lewis R. Little (50) 1993
President and Chief Operating Officer of Gwaltney of Smithfield, Ltd. ("Gwaltney"), a
wholly-owned subsidiary of the Company, since May 1993; Executive Vice President of Gwaltney
prior to May 1993
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME -- AGE -- PRINCIPAL OCCUPATION -- OTHER INFORMATION DIRECTOR SINCE
<S> <C>
Robert W. Manly (41) 1991
President and Chief Operating Officer of Smithfield Packing since June 1994; Executive Vice
President of the Company prior to June 1994
Wendell H. Murphy (55) 1991
Chairman of the Board and Chief Executive Officer, Murphy Farms, Inc., Rose Hill, North Carolina,
a hog producer
William H. Prestage (59) --
Chairman of the Board, President and Chief Executive Officer of Prestage Farms, Inc., Clinton,
North Carolina, a hog and turkey producer; Director, North Carolina Natural Gas Corporation
Aaron D. Trub (59) 1986
Vice President, Secretary and Treasurer of the Company
</TABLE>
No family relationship exists between any of the nominees for election as
directors of the Company.
Based solely on its review of the forms required by Section 16(a) of the
Securities Exchange Act of 1934 that have been received by the Company or
written representations from certain reporting persons that no annual statements
on Form 5 were required, the Company believes that all filing requirements
applicable to its officers, directors and beneficial owners of greater than 10%
of its Common Stock have been complied with, except that Mr. Gwaltney and
Carroll's Foods, Inc. each filed late a required monthly report of a
transaction.
COMMON STOCK OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS
The following information with respect to beneficial ownership, as of July
15, 1994, of shares of Common Stock is furnished with respect to each nominee
for election to the Board of Directors and with respect to all executive
officers and directors as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
(NUMBER OF SHARES)(1) PERCENT
NAME DIRECT OTHER TOTAL OF CLASS
<S> <C> <C> <C> <C>
F. J. Faison, Jr. -- 2,123,000(2) 2,123,000(2) 13.0
Joel W. Greenberg 2,000 1,000(3) 3,000(3) *
Cecil W. Gwaltney 33,475 -- 33,475 *
George E. Hamilton, Jr. 61,500 101,000(4) 162,500(4) *
Richard J. Holland 32,000 -- 32,000 *
Roger R. Kapella 2,900 56,000(5) 58,900(5) *
Lewis R. Little -- 20,000(6) 20,000(6) *
Joseph W. Luter, III 1,661,236 825,032(7) 2,486,268(7) 14.8
Robert W. Manly 26,000 40,000(8) 66,000(8) *
Wendell H. Murphy -- 459,000(9) 459,000(9) 2.8
William H. Prestage -- 60,000(10) 60,000(10) *
Aaron D. Trub 42,682 107,000(11) 149,682(11) *
All executive officers and
directors as a group (13
persons) 1,881,793 3,825,032(12) 5,706,825(12) 33.4
</TABLE>
* Less than 1% of class
4
<PAGE>
(1) Pursuant to current regulations of the Securities and Exchange
Commission, securities must be listed as "beneficially owned" by a person who
directly or indirectly has or shares the power to vote ("voting power") or the
power to dispose of ("dispositive power") the securities, whether or not the
person has any economic interest in the securities. In addition, a person is
deemed a beneficial owner if he has the right to acquire beneficial ownership
within 60 days, whether upon the exercise of a stock option or warrant,
conversion of a convertible security or otherwise. Shares of Common Stock listed
under the "Direct" column are those which are owned and held by each director
and over which each such director, except as noted below, has sole voting power
and sole dispositive power. Shares shown under the "Other" column include other
forms of "beneficial ownership" pursuant to the aforesaid regulations, as
described in the indicated footnotes.
(2) Reflects 2,123,000 shares owned by Carroll's Swine Investment
Partnership, a North Carolina partnership between Carroll's Foods, Inc. and
Carroll's Foods of Virginia, Inc. Mr. Faison is an officer and director of
Carroll's Foods, Inc. and Carroll's Foods of Virginia, Inc., but is not a
stockholder of either corporation. Carroll's Swine Investment Partnership has
sole voting power and sole dispositive power with respect to such shares. Mr.
Faison disclaims beneficial ownership of such shares.
(3) Includes 1,000 shares owned by Mr. Greenberg's spouse with respect to
which Mr. Greenberg disclaims beneficial ownership.
(4) Includes 100,000 shares subject to presently exercisable stock options
and 1,000 shares owned by Mr. Hamilton's son with respect to which Mr. Hamilton
disclaims beneficial ownership.
(5) Includes 56,000 shares subject to presently exercisable stock options.
(6) Reflects 20,000 shares subject to presently exercisable stock options.
(7) Includes 325,032 shares owned by a corporation of which Mr. Luter is an
officer, director and the owner of 81% of its capital stock, and 500,000 shares
which Mr. Luter has the right to acquire pursuant to the exercise of presently
exercisable stock options. Mr. Luter has sole voting power and sole dispositive
power with respect to the 325,032 shares owned by the corporation. Mr. Luter may
be deemed a control person of the Company.
(8) Includes 40,000 shares subject to presently exercisable stock options.
(9) Reflects 459,000 shares owned by Murphy Farms, Inc., of which Mr.
Murphy is an officer, director and the principal stockholder. Murphy Farms, Inc.
has sole voting power and sole dispositive power with respect to such shares.
(10) Reflects 60,000 shares owned by Prestage Farms, Inc., of which Mr.
Prestage is an officer, director and the principal stockholder. Prestage Farms,
Inc. has sole voting power and sole dispositive power with respect to such
shares.
(11) Includes 50,000 shares subject to presently exercisable stock options.
Also includes 41,000 shares owned by Mr. Trub's spouse and 16,000 shares owned
by Mr. Trub's children with respect to which Mr. Trub disclaims beneficial
ownership.
(12) Includes 786,000 shares subject to presently exercisable stock
options.
BOARD OF DIRECTORS AND COMMITTEES
The Company has an Executive Committee, an Audit Committee and a
Compensation Committee of the Board of Directors. The Company does not have a
Nominating Committee.
5
<PAGE>
The Executive Committee is comprised of Messrs. Hamilton, Holland and Luter
and, with certain limitations, exercises the power of the Board of Directors
between board meetings. The Executive Committee did not hold any meetings in
fiscal 1994.
The Audit Committee is comprised of Messrs. Faison and Murphy. The
principal functions of the Audit Committee are the recommendation to the Board
of Directors of a firm to be engaged by the Company as its independent public
accountants, conferring with the independent public accountants selected
regarding the scope of the audit and services to be performed and reviewing the
results of the independent public accountants' examination and recommendations
with respect to accounting practices and procedures and internal control. The
committee held one meeting in fiscal 1994.
The Compensation Committee is comprised of Messrs. Greenberg and Holland.
The principal functions of the Compensation Committee are to administer the
Company's stock option and certain other benefit plans, to review
recommendations submitted to it by the Company's management with respect to the
compensation of the officers of the Company and its subsidiaries and the
directors of the Company, and to make such recommendations to the Board of
Directors of the Company as its review indicates. The committee held two
meetings in fiscal 1994.
The Board of Directors held nine meetings during fiscal 1994. All directors
attended 75% or more of these meetings, including regularly scheduled and
special meetings, and the meetings of all committees of the Board on which they
served that were held in the past fiscal year during the periods in which they
were directors or served on such committees.
Directors who are not employees of the Company or any of its subsidiaries
received in fiscal 1994 an annual retainer of $3,000, $500 for each board
meeting attended, $500 for each committee meeting attended if the committee
meeting was not held in connection with, or on the same day as, a board meeting,
plus reimbursement of travel expenses incurred in connection with such
attendance. The Board of Directors holds three regular meetings each year.
The Company has agreed to compensate George E. Hamilton, Jr., a director of
the Company and the retired President and Chief Operating Officer of Smithfield
Packing, for any consulting services he may provide to the Company during the
next two years at a rate of approximately $4800 per week.
6
<PAGE>
EXECUTIVE COMPENSATION
The table below sets forth, for the fiscal years ended May 1, 1994, May 2,
1993 and May 3, 1992, the annual and long-term compensation for services in all
capacities to the Company and its subsidiaries of those persons who at May 1,
1994 were the Company's Chief Executive Officer and the next four highest
compensated executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
SECURITIES
FISCAL ANNUAL COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS/SARS (#)
<S> <C> <C> <C> <C>
Joseph W. Luter, III 1994 $432,923 $595,893 100,000
Chairman of the Board, 1993 407,077 74,208 0
President and Chief 1992 428,077 745,960 0
Executive Officer of the
Company
George E. Hamilton, Jr. (2) 1994 304,076 595,893 0
President and Chief 1993 285,923 74,208 0
Operating Officer of 1992 300,673 745,960 0
Smithfield Packing
Roger R. Kapella 1994 157,500 292,120 35,000
President and Chief 1993 157,500 223,314 0
Operating Officer of 1992 160,529 173,866 0
Patrick Cudahy
Lewis R. Little 1994 274,317 58,777 65,000
President and Chief 1993 129,048 10,943 0
Operating Officer of 1992 120,673 45,820 0
Gwaltney
Aaron D. Trub 1994 190,692 90,000 35,000
Vice President, Secretary 1993 179,308 50,000 0
and Treasurer of the 1992 181,827 100,000 0
Company
</TABLE>
(1) Bonus payments shown for fiscal 1993 and fiscal 1992 were for services
rendered in the twelve-month periods ended December 31, 1992 and 1991,
respectively, while bonus payments for fiscal 1994 were for services rendered in
fiscal 1994, reflecting the Company's change from a calendar year to a fiscal
year basis for determining bonuses. Messrs. Kapella and Trub received bonuses
for services rendered during the period January 1, 1993 through May 2, 1993 in
the amounts of $26,740 and $25,000, respectively.
(2) Mr. Hamilton retired effective June 13, 1994.
7
<PAGE>
The table below sets forth information with respect to options granted
during the fiscal year ended May 1, 1994 to each of the executive officers for
whom information is given in the Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS/SARS EXERCISE ANNUAL RATE OF STOCK
SECURITIES GRANTED TO OR PRICE APPRECIATION
UNDERLYING EMPLOYEES BASE FOR OPTION TERM (3)
OPTIONS/SARS IN FISCAL PRICE EXPIRATION
NAME GRANTED (#)(1) YEAR ($/SH)(2) DATE 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Joseph W. Luter, III 100,000 13.2% 23.06 10/4/03 198,425 1,681,879
George E. Hamilton, Jr. -- -- -- -- -- --
Roger R. Kapella 35,000 4.6% 23.06 10/4/03 69,449 588,658
Lewis R. Little 65,000 8.6% 23.06 10/4/03 128,977 1,093,221
Aaron D. Trub 35,000 4.6% 23.06 10/4/03 69,449 588,658
</TABLE>
(1) These options become exercisable on October 4, 1998, which is five
years from the date of grant.
(2) The exercise price of the options is equal to 150% of the fair market
value of the Company's Common Stock on the date of grant.
(3) The potential realizable values assume that the market price of the
Company's Common Stock appreciates in value from the date of grant to the end of
the option term at the annualized rates prescribed by the Securities and
Exchange Commission and are not intended to forecast possible future
appreciation in the Company's stock price. The actual value, if any, an officer
may realize will depend on the excess, if any, of the stock price over the
exercise price on the date the option is exercised.
The table below sets forth information with respect to the number and value
of options held at May 1, 1994 by each of the executive officers for whom
information is given in the Summary Compensation Table.
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS/SARS AT IN-THE-MONEY OPTIONS AT
5-1-94 5-1-94(1)
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) (#) ($) ($)
<S> <C> <C> <C> <C>
Joseph W. Luter, III 500,000 100,000 7,937,500 94,000
George E. Hamilton, Jr. 100,000 -- 1,587,500 --
Roger R. Kapella 56,000 35,000 983,500 32,900
Lewis R. Little 20,000 65,000 317,500 61,100
Aaron D. Trub 50,000 35,000 793,750 32,900
</TABLE>
(1) Based on the last sales price of the Common Stock of $24 on April 29,
1994.
8
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The Compensation Committee (the "Committee") believes strongly that
corporate performance and, in turn, stockholder value depends to a significant
extent on the establishment of a close alignment between the financial interests
of stockholders and those of the Company's employees, including its senior
managers. Accordingly, the Committee and the Company adhere both in principle
and in practice to the concept of pay-for-performance. The Company relies
heavily on incentive compensation programs to motivate employees. These programs
are variable and closely tied to corporate, business unit and/or individual
performance, and place "at risk" a major portion of executive compensation in a
manner that encourages a sharp and continuing focus on building stockholder
value. The Company encourages executives to hold significant amounts of Company
stock, and in part the compensation programs are designed to accomplish that
objective.
COMPONENTS OF THE COMPENSATION PROGRAM
Senior management compensation at the Company includes two components:
first, a base salary, and second, long-and short-term incentive compensation
programs, both cash and non-cash, that are tied to the Company's or certain of
its subsidiaries' financial performance.
Base salaries are generally established at the minimum levels believed by
the Committee to be necessary to attract and retain a highly efficient
management group when considered along with the performance-based components of
the program. Except in the case of one executive officer who assumed significant
new responsibilities during fiscal 1994, the base salaries of the executive
officers have remained, in effect, unchanged since fiscal 1992. Upon the
recommendation of management, the base salaries of some executive officers were
actually reduced for part of fiscal 1993; these amounts were subsequently repaid
to the executive officers in fiscal 1994 because of the significant improvement
in the Company's financial performance.
A cash bonus is the principal short-term incentive. Bonus awards for most
executive officers, including the Chief Executive Officer, are calculated
pursuant to a formula based on pre-tax income, either on a consolidated basis or
for a particular subsidiary, as the Committee finds most appropriate, and are
subject to adjustment based on the officer's individual performance. Bonus
awards for the remaining executive officers are based primarily on individual
performance, as evaluated by the Chief Executive Officer and reviewed by the
Committee, with consideration given to the Company's financial performance
measured principally in terms of its pre-tax income. Consistent with the
Committee's policy that a major portion of executive compensation be "at risk,"
bonus awards for executive officers in recent years have ranged from 15% to 71%
of an executive officer's total cash compensation depending on Company and
individual performance. Mostly as a result of the Company's significant
improvement in pre-tax income in fiscal 1994 over fiscal 1993, bonus awards for
fiscal 1994 averaged 53% of the executive officers' total cash compensation.
Long-term incentives are provided by stock options, awarded from time to
time, whose ultimate value to the employee is tied to the market price of the
Company's Common Stock. The Company's stock option program ties the employee's
economic interests directly to those of the stockholders. In recommending the
recipients and size of stock option awards, the Committee considers the level of
incentive already provided by the size and status of prior grants as well as a
subjective evaluation of the employee's potential contribution to the Company's
future success. Stock options were awarded to approximately 50 employees during
the last fiscal year, including most of the executive officers. These were the
first stock option awards since 1989 and were granted with an exercise price of
150% of the fair market value of the Common Stock.
9
<PAGE>
ADMINISTRATION OF COMPENSATION PROGRAMS
Messrs. Greenberg and Holland, neither of whom has been or is an officer or
employee of the Company, are the members of the Committee. The Committee
principally formulates compensation policies and reviews recommendations
submitted to it by management with respect to the cash and non-cash compensation
of the officers of the Company and its subsidiaries, as well as of Company
directors. The Committee then makes specific recommendations on an annual basis
to the Board of Directors. The Board of Directors has never modified or rejected
in any material way any recommendation of the Committee.
CEO COMPENSATION
The Committee determined the compensation of Joseph W. Luter, III, the
Chairman, President and Chief Executive Officer of the Company, for fiscal 1994
in accordance with the guidelines described above. Consistent with the
Committee's policy that a major part of each executive officer's compensation be
performance-based, and therefore at risk, Mr. Luter's base salary has remained,
in effect, unchanged since fiscal 1992. Mr. Luter was among those executive
officers who received a reduction in base salary for part of fiscal 1993, as
recommended by management, with the amount foregone being repaid in fiscal 1994
when the Company's financial performance improved significantly. Mr. Luter's
bonus award for fiscal 1994 was determined pursuant to the formula described
above and represented approximately 58% of his total cash compensation as a
result of the Company's significant improvement in pre-tax income in fiscal 1994
over fiscal 1993. The award of stock options to Mr. Luter was based on the
criteria previously discussed.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), which was enacted in 1993, imposes a $1 million limit
on the amount of annual compensation that will be deductible by the Company with
respect to each of the Chief Executive Officer and the four other most highly
compensated executive officers. Performance-based compensation that meets
certain requirements will not be subject to this deductibility limit. The
Company is proposing changes to the 1992 Stock Incentive Plan and has designed
the Incentive Bonus Plan with the intention of making these plans meet the
requirements for performance-based compensation. It is currently the Company's
policy to seek to qualify the performance-based components of its compensation
program for this exclusion from the section 162(m) limitation as necessary to
maximize the deductibility of executive compensation.
COMPENSATION COMMITTEE
Joel W. Greenberg
Richard J. Holland
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Cecil W. Gwaltney, a director of the Company and former member of the
Compensation Committee, is chairman of the board of Gwaltney Motor Company
("GMC"), which was paid $515,000 by the Company in fiscal 1994 for automotive
equipment and parts and maintenance and leasing services. The Company leases
substantially all of its automobiles under three-year leases arranged by GMC. As
of May 1, 1994, the Company was obligated to make a total of $777,000 in future
lease payments under such leases in effect on that date. The Company's
management believes that the terms of all of its purchase transactions with GMC
and the terms of the leases arranged by GMC are comparable to those available
from other suppliers.
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PERFORMANCE GRAPH
The Company is subject to Securities and Exchange Commission rules which
require all public companies to present a corporate performance graph in their
annual proxy statement. The rules require a line graph which compares the
Company's five-year cumulative total stockholder return on its Common Stock with
a broad equity market index and either a published industry index or an index of
peer companies selected by the Company. The graph below presents a comparison of
the Company's performance with the Meat Packing Index (SIC Code 2011) and the
Nasdaq Market Value Index, each prepared by Media General Financial Services,
Inc., assuming that investments of $100 were made on May 1, 1989 and that
dividends were reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
OF COMPANY, PUBLISHED INDUSTRY INDEX AND BROAD MARKET INDEX
[graph as defined by the following data points]
<TABLE>
1989 1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
Smithfield Foods, Inc. 100 60.87 226.81 186.96 166.67 278.26
Meat Packing Index 100 123.53 194.58 170.96 175.62 202.88
NASDAQ Market Value Index 100 93.19 103.60 106.27 126.97 142.52
</TABLE>
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PENSION PLANS
The Company, Gwaltney of Smithfield, Ltd. ("Gwaltney"), Patrick Cudahy
Incorporated ("Patrick Cudahy") and The Smithfield Packing Company, Incorporated
("Smithfield Packing") maintain qualified non-contributory pension plans
covering their salaried employees. Esskay, Inc. ("Esskay") maintains a qualified
pension plan for its salaried employees that allows, but does not require,
employee contributions. These plans are the only contingent forms of
remuneration provided by the Company, Esskay, Gwaltney, Patrick Cudahy or
Smithfield Packing to officers and directors.
The qualified pension plan maintained by the Company provides for
retirement benefits which are a function of each participant's average earnings
during his final five plan years of employment and his aggregate years of
service with any company in the Company's controlled group. All compensation
paid to a participant within a plan year is included in determining average
earnings used to calculate pension benefits. These benefits are calculated by
applying a certain percentage to the average earnings up to a given level (based
on the participant's year of birth) and a higher percentage to the average
earnings above this level and then multiplying the sum by the years of service.
This method of calculation has the effect of coordinating the benefits provided
by the Company's qualified pension plan with those provided by Social Security.
The qualified pension plans maintained by Patrick Cudahy, Gwaltney and
Smithfield Packing each provide for retirement benefits which are a function of
each participant's average earnings during his final five calendar years of
employment and his aggregate years of service with any company in the Company's
controlled group. All compensation paid to a participant within a calendar year
is included in determining average earnings used to calculate pension benefits
under the respective plans of these companies. These benefits are calculated by
applying a certain percentage to the average earnings up to a given level (based
on the participant's year of birth) and a higher percentage to the average
earnings above this level and then multiplying the sum by the years of service.
This method of calculation has the effect of coordinating the benefits provided
by each company's qualified pension plan with those provided by Social Security.
The qualified pension plan maintained by Esskay provides for retirement
benefits which are a function of each participant's earnings and his aggregate
years of service with any company in the Company's controlled group. All
compensation accrued for the plan year is included in the earnings used to
calculate pension benefits under the plan. These benefits are calculated by
applying a certain percentage to each year's earnings up to a given level
(varying by calendar year) and a higher percentage to that year's earnings above
this level, then adding up the results for each year of service. This method of
calculation has the effect of coordinating the benefits provided by the Esskay
qualified pension plan with those provided by Social Security.
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The following table indicates the estimated annual benefits payable upon
retirement at age 65 in 1994 to participants in the Company's qualified pension
plan, based on the specific remuneration and years of service classifications
set forth below.
<TABLE>
<CAPTION>
AVERAGE EARNINGS
DURING PARTICIPANTS YEARS OF SELECTED SERVICE WITH COMPANIES
FINAL FIVE IN THE COMPANY'S CONTROLLED GROUP
PLAN YEARS
(1)-(4) 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 120,000 $27,693 $36,924 $46,154 $ 55,385 $ 64,616
160,000 37,893 50,524 63,154 88,416 88,840
200,000 48,093 64,124 80,154 96,185 112,216
240,000 52,995 70,660 88,325 105,990 115,641(2)
280,000 52,995 70,660 88,325 105,990 115,641(2)
320,000 52,995 70,660 88,325 105,990 115,641(2)
360,000 52,995 70,660 88,325 105,990 115,641(2)
</TABLE>
(1) A plan year is the one-year period from January 1 to the following
December 31.
(2) The maximum annual retirement benefit will be $118,800 for benefits
commencing in 1994 at the participant's social security retirement age, unless a
participant had a higher "current accrued benefit" (as defined in the Tax Reform
Act of 1986) in which case the higher benefit will be permitted. The maximum
amount is subject to annual cost-of-living adjustments.
(3) The remuneration covered by the plan is the remuneration paid during
the plan year, whereas the remuneration reported in the summary compensation
table is the remuneration paid for the fiscal year ended May 1, 1994.
(4) In accordance with changes in federal pension law which became
effective January 1, 1994, annual compensation in excess of $150,000 cannot be
considered when calculating a qualified pension benefit. However, benefits
accrued through December 31, 1993, which may have been based on higher
compensation, will not be reduced.
As of May 1, 1994, Messrs. Luter, Hamilton, Kapella, Little and Trub are
credited with 26, 24, 9, 30 and 24 years of service, respectively, under the
pension plan. The benefits shown in the table are not subject to any reduction
for benefits paid from other sources, including Social Security, unless a
benefit is payable for the same service under another qualified plan of a
company in the Company's controlled group.
OTHER TRANSACTIONS
Joseph W. Luter, III, the Chairman, President and Chief Executive Officer
of the Company, is an officer, director and the owner of 81% of the capital
stock of Luter Packing Company, a wholesale distributor of meat and other food
products. The Company sold $321,000 of its fresh pork and processed meat
products to Luter Packing Company in fiscal 1994. The sales to Luter Packing
Company were made by the Company in the ordinary course of its business, and in
the opinion of the Company's management, the terms of those transactions were as
favorable to the Company as those made to unaffiliated parties. Gwaltney
purchased $8,159,000 of comminuted chicken meat for use in its frank and bologna
products from a company 48% of the capital stock of which is owned by Mr.
Luter's three adult children. The Company believes that the terms under which
Gwaltney made such purchases were as advantageous to Gwaltney as those Gwaltney
would have received from any other comminuted chicken meat producer.
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<PAGE>
Roger R. Kapella, Aaron D. Trub and other officers of the Company, Gwaltney
and Smithfield Packing and George E. Hamilton, Jr., a director of the Company,
are members of a group which owns 18% of the capital stock of RCS-Smithfield,
Inc. ("RCSS"). The Company has an agreement with RCSS, which expires in fiscal
2003, to use a cold storage warehouse facility owned and operated by RCSS near
Smithfield, Virginia, as its primary outside cold storage warehouse for its
plants in Smithfield, Virginia. Under the agreement, the Company pays RCSS for
the use of the facility at prevailing competitive rates for such services and
guarantees a minimum annual usage fee of $1,200,000 which is presently
renegotiable. The Company paid RCSS $2,474,000 in fees for use of the facility
in fiscal 1994. The Company has the right under certain circumstances to
purchase the facility from RCSS for $300,000 in excess of the book value of the
facility until April 1998. The Company believes that the terms, conditions and
rates under which it has agreed to use the RCSS facility are as advantageous to
the Company as are such terms, conditions and rates of any other outside cold
storage warehouse facility.
F. J. Faison, Jr., a director of the Company, is the president and a
director of Carroll's Foods, Inc. ("CFI") and its affiliates, Carroll's Farms of
Virginia, Inc. ("CFAV") and Carroll's Foods of Virginia, Inc. ("CFOV"). The
Company has arrangements with CFI and its affiliates for production of hogs for
the Company's meat processing plants. The arrangements involve, inter alia, (i)
Smithfield-Carroll's Farms, a partnership consisting of Smithfield Hog Farms,
Inc. (a wholly-owned subsidiary of the Company) and CFAV, which partnership owns
hog raising facilities and leases them to CFOV, and (ii) contracts between the
Company and CFOV and CFI which obligates the Company to purchase hogs produced
by CFOV and CFI. Substantially all revenues of the Smithfield-Carroll's Farms
partnership consist of CFOV's lease payments, which cover debt service,
depreciation charges and other operating expenses. For fiscal 1994, such
revenues were $9,706,000, and such revenues are expected to equal or exceed this
level in fiscal 1995. Pursuant to the purchase agreements, the Company purchased
$62,348,000 and $127,849,000 of live hogs from CFOV and CFI, respectively, in
fiscal 1994 and anticipates a greater volume of business under these agreements
in fiscal 1995. The Company believes that the prices paid under the purchase
agreement with CFI are equivalent to market. During periods when hog production
is profitable, the purchase agreement with CFOV results in decreased raw
material costs to the Company and, conversely, an increase in costs when such
production is unprofitable. In fiscal 1994, the benefit of those decreased costs
to the Company was $2,223,000.
Wendell H. Murphy, a director of the Company, is the chairman of the board
and chief executive officer and the principal stockholder of Murphy Farms, Inc.
("MFI"). The Company has a contract with MFI which obligates the Company to
purchase hogs finished by MFI in the Southeast. Pursuant to the purchase
agreement, the Company purchased $197,997,000 of live hogs from MFI in fiscal
1994 and anticipates a greater volume of business under this agreement in fiscal
1995. The Company believes that the prices paid under the purchase agreement
with MFI are equivalent to market.
The daughter and son-in-law of Joseph W. Luter, III, the Chairman,
President and Chief Executive Officer of the Company, are the sole members of
Fishing Creek Farms, LLC ("Fishing Creek"). In April 1994, Brown's of Carolina,
Inc. ("Brown's"), an 86%-owned subsidiary of the Company, entered into certain
arrangements with B&G Farms, LLC ("B&G"), a limited liability company in which
Brown's and Fishing Creek each have a 50% interest, for the production of hogs
for the Company's pork processing plants. The arrangements involve, inter alia,
(i) an investment of $1,200,000 and a loan of $1,100,000 by each of Brown's and
Fishing Creek to B&G, (ii) the sale by Brown's to B&G of certain hog production
facilities for $3,302,000, which represented the historical cost of the
facilities to Brown's, (iii) the lease of such facilities back to Brown's until
December 31, 2009 at an annual rent of approximately $465,000 per year and (iv)
an advance by B&G to Brown's of $1,295,000 for working capital. All profits and
losses from the hog production operations will be shared equally by Brown's and
Fishing Creek. All loans and advances made pursuant to the arrangements accrue
interest at a rate equal to the
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<PAGE>
prime rate charged by one of the Company's lending banks. No lease payments by
Brown's or hog purchases by the Company occurred under these arrangements during
fiscal 1994. The Company believes that the terms of the foregoing arrangements
are no less favorable to the Company than if entered into with unaffiliated
parties.
Smithfield of Utah, Inc., a wholly-owned subsidiary of the Company, has
entered into a joint hog production arrangement with three companies to produce
hogs in the State of Utah. The other companies participating in the joint hog
production arrangement are (i) Carroll's Foods of Utah, Inc., of which F. J.
Faison, Jr., a director of the Company, is the president and a director, (ii)
West Isle Partners, Inc., of which Wendell H. Murphy, a director of the Company,
is the president and a director and members of Mr. Murphy's family are the sole
stockholders, and (iii) Prestage Farms of Utah, Inc., of which William H.
Prestage, a nominee for election as a director of the Company, is the president
and a director and Mr. Prestage and his wife are the sole stockholders. Each of
the companies has contributed $1 million to the arrangement in exchange for a
25% interest in the profits or losses. In April 1994, the Company transferred
certain real estate located in the State of Utah to the arrangement for an
aggregate sales price of $1,694,000, which represented the historical cost of
the property to the Company plus certain related costs. The Company believes
that the terms of the joint arrangement and the sale of the real estate were no
less favorable to the Company than if entered into with unaffiliated parties.
PROPOSAL 2
APPROVAL OF
AMENDMENT AND RESTATEMENT OF 1992 STOCK INCENTIVE PLAN
INTRODUCTION
The 1992 Stock Incentive Plan (the "1992 Plan") was adopted by the Board of
Directors and approved by the Company's stockholders in 1992. On April 13, 1994,
the Board of Directors amended and restated the 1992 Plan, subject to
stockholder approval, (i) to permit options to be granted with an exercise price
of 100% of fair market value (instead of 150% of fair market value), (ii) to
limit to 100,000 the number of option shares that can be granted in any year to
an eligible employee and (iii) to permit optionees to pay withholding taxes that
become applicable upon exercise of an option by delivering, or having the
Company withhold, shares of Company Common Stock equal in value to the
withholding taxes.
The 1992 Plan became effective May 20, 1992. Unless sooner terminated by
the Board of Directors, the Plan will terminate on May 19, 2002. No options may
be granted under the 1992 Plan after termination.
The 1992 Plan is intended to provide a means for selected key management
employees of the Company to increase their personal financial interest in the
Company, thereby stimulating the efforts of these employees and strengthening
their desire to remain with the Company.
The principal features of the 1992 Plan as amended and restated are
summarized below. The summary is qualified by reference to the complete text of
the amended and restated plan, which is attached as Exhibit A.
GENERAL
The 1992 Plan reserves 1,250,000 shares of Common Stock for issuance
pursuant to the exercise of stock options. Options covering 755,500 shares have
been granted to date. If an option is cancelled, terminates or lapses
unexercised, any unissued shares allocable to such option may be subjected again
to an option award. In the event of a future stock dividend, stock split or
similar prorata change in the number of outstanding shares of Common Stock or
the future creation or issuance to shareholders generally of rights, options or
warrants for the
15
<PAGE>
purchase of Common Stock or preferred stock, the number of shares covered by an
option and/or the exercise price thereof, or both, as appropriate, will be
adjusted.
The Common Stock is traded over-the-counter, and on July 15, 1994 the last
sales price reported on The Nasdaq National Market was $29.
ELIGIBILITY
All present and future employees of the Company and subsidiaries of the
Company who hold key positions are eligible to receive incentive awards under
the 1992 Plan. The Company estimates that it has approximately 75 such employees
including officers.
ADMINISTRATION
The 1992 Plan is administered by the Compensation Committee (the
"Committee") which is comprised of directors of the Company who are not eligible
to participate in the plan or any similar plan of the Company and who are
"outside directors" for purposes of section 162(m) of the Internal Revenue Code.
The Committee has the power and complete discretion to determine when to grant
options, which eligible employees will receive options, and the number of shares
to be allocated to each option. The Committee may impose conditions on the
exercise of options in addition to those required by the plan, and may impose
such other restrictions and requirements as it may deem appropriate.
STOCK OPTIONS
Options granted under the 1992 Plan are nonstatutory stock options.
Nonstatutory options do not qualify for favorable income tax treatment under
Section 422 of the Internal Revenue Code. The exercise price of an option
granted after the amendment and restatement of the plan are approved by
stockholders may not be less than 100% of the fair market value of the Common
Stock on the date of grant.
Options may only be exercised five years after the date of grant or at such
later times as may be specified by the Committee, provided, however, that
options may not be exercised after the first to occur of (i) ten years from the
date on which the option was granted, (ii) three months from the date of the
optionee's termination of employment with the Company for reasons other than
death or disability or (iii) one year from the date of the optionee's
termination of employment on account of death or disability. An option not
otherwise exercisable because the five-year period from the date of grant has
not expired will become exercisable automatically upon a "change of control" (a
term defined in the plan) or on the day immediately preceding the distribution
date under the amended Rights Agreement between the Company and First Union
National Bank of North Carolina, dated as of January 31, 1994.
In order for the plan to meet the requirements under section 162(m) of the
Internal Revenue Code for performance-based compensation, the maximum number of
shares with respect to which options may be granted in any calendar year to an
employee eligible to participate in the plan is limited to 100,000.
An optionee exercising an option will pay the exercise price in cash except
that if the option so provides, the optionee may instead pay the exercise price
by (i) delivering shares of Common Stock, (ii) having the Company withhold
shares of Common Stock from the option shares or (iii) delivering an exercise
notice together with irrevocable instructions to a broker to promptly deliver to
the Company the amount of sale or loan proceeds from the option shares to pay
the exercise price. In addition to paying the exercise price, the optionee is
required to pay all applicable withholding taxes that become payable upon the
exercise of an option. The 1992 Plan has been amended, subject to stockholder
approval, to provide that as an alternative to cash, if the option so provides,
the
16
<PAGE>
optionee may deliver, or have the Company withhold, shares of Company Common
Stock to satisfy such withholding taxes pursuant to procedures established by
the Committee.
TRANSFERABILITY OF INCENTIVE AWARDS
An option awarded under the plan may not be sold, transferred, pledged or
otherwise disposed of, other than by will or by the laws of descent and
distribution. All rights granted to a participant under the plan are exercisable
during his lifetime only by such participant, or his guardians or legal
representatives. Upon the death of a participant, his personal representative or
beneficiary may exercise his rights under the plan.
AMENDMENT OF THE PLAN AND AWARDS
The Board of Directors may amend the 1992 Plan in such respects as it deems
advisable; provided that the stockholders of the Company must approve any
amendment that would (i) materially increase the benefits accruing to
participants, (ii) materially increase the number of shares of Common Stock that
may be issued or (iii) materially modify the requirements of eligibility for
participation. Options granted under the 1992 Plan may be amended with the
consent of the recipient so long as the amended option is consistent with the
terms of the plan.
FEDERAL INCOME TAX CONSEQUENCES
There are generally no federal income tax consequences to the Company or
the participant at the time an option is granted. Upon exercise of a stock
option, an optionee generally will recognize compensation income (which is
subject to income tax withholding by the Company) equal to the difference
between the fair market value of the Common Stock on the date of the exercise
and the exercise price. Special rules apply to certain officer optionees who
exercise options within six months of the date of grant. If the option so
provides, an optionee exercising an option may deliver shares of Common Stock
instead of cash to pay the exercise price without having to recognize taxable
gain on any appreciation in value of the shares delivered.
The Company will usually be entitled to a business expense deduction at the
time and in the amount that an optionee recognizes ordinary compensation income.
If the optionee is the Chief Executive Officer or one of the Company's four
other most highly paid executive officers, the deduction will be subject to the
$1 million limitation under section 162(m) of the Internal Revenue Code on the
amount of such optionee's annual compensation which may be deducted unless the
plan meets the statutory requirements for performance-based compensation. The
plan as amended and restated is intended to comply with these statutory
requirements so that compensation income recognized upon the exercise of an
option will be performance-based, and therefore deductible without regard to the
$1 million limitation. However, because of certain interpretational issues under
the statutory provisions, the transition rules and the proposed Internal Revenue
Service regulations, there can be no assurance that the options previously
awarded or to be awarded will qualify for this exception.
VOTE REQUIRED
Approval of the proposed amendment and restatement of the 1992 Plan
requires the affirmative vote of the holders of a majority of the shares of
Common Stock represented at the Meeting.
The Board of Directors recommends a vote FOR the proposed amendment and
restatement of the 1992 Stock Incentive Plan.
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<PAGE>
PROPOSAL 3
APPROVAL OF AMENDMENT TO 1984 STOCK OPTION PLAN
INTRODUCTION
The Smithfield Foods, Inc. Stock Option Plan (1984) (the "1984 Plan") was
adopted by the Board of Directors and approved by the Company's stockholders in
1984. On April 13, 1994, the Board of Directors amended the 1984 Plan, subject
to stockholder approval, to permit options to be amended to provide alternative
methods of payment, in addition to cash, of the exercise price and the
withholding taxes that become applicable upon exercise, as discussed below.
GENERAL
The 1984 Plan terminated on May 9, 1994 so that no further options may be
granted under the plan. The plan remains in effect as to options granted before
May 9, 1994 that remain exercisable. As of July 15, 1994, options covering
888,600 shares of the Company's Common Stock were still exercisable under the
1984 Plan. In the event of a future stock dividend, stock split or similar
prorata change in the number of outstanding shares of Common Stock or the future
creation or issuance to shareholders generally of rights, options or warrants
for the purchase of Common Stock or preferred stock, the number of shares
covered by an option and/or the exercise price thereof, or both, as appropriate,
will be adjusted.
See the discussion of the 1992 Stock Incentive Plan above for recent
information regarding the market value of the Common Stock.
ELIGIBILITY
While in effect, key employees of the Company and its subsidiaries were
eligible to receive options under the 1984 Plan. Nineteen employees (including
officers) received options under the 1984 Plan.
ADMINISTRATION
The 1984 Plan is administered by the Compensation Committee.
STOCK OPTIONS
All options granted under the 1984 Plan were nonstatutory stock options.
Nonstatutory options do not qualify for favorable income tax treatment under
Section 422 of the Internal Revenue Code.
Currently, an optionee exercising an option is required to pay the exercise
price in cash. The 1984 Plan has been amended, subject to stockholder approval,
to provide that if the option so provides, or is amended to so provide, the
optionee may instead pay the exercise price by (i) delivering shares of Common
Stock, (ii) having the Company withhold shares of Common Stock from the option
shares or (iii) delivering an exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds from the option shares to pay the exercise price. In addition
to paying the exercise price, the optionee is required to pay all applicable
withholding taxes that become payable upon the exercise of an option. The 1984
Plan has been amended, subject to stockholder approval, to provide that as an
alternative to cash, if the option so provides or is amended to so provide, the
optionee may deliver, or have the Company withhold, shares of Company Common
Stock to satisfy such withholding taxes pursuant to procedures established by
the Committee.
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<PAGE>
TRANSFERABILITY OF INCENTIVE AWARDS
An option awarded under the plan may not be sold, transferred, pledged, or
otherwise disposed of, other than by will or by the laws of descent and
distribution. All rights granted to a participant under the plan are exercisable
during his lifetime only by such participant, or his guardians or legal
representatives. Upon the death of a participant, his personal representative or
beneficiary may exercise his rights under the plan.
AMENDMENT OF THE PLAN AND AWARDS
The Board of Directors may amend the 1984 Plan in such respects as it deems
advisable; provided that the stockholders of the Company must approve any
amendment that would (i) materially increase the benefits accruing to
participants, (ii) materially increase the number of shares of Common Stock that
may be issued or (iii) materially modify the requirements of eligibility for
participation. Options granted under the 1984 Plan may be amended with the
consent of the recipient so long as the amended option is consistent with the
terms of the plan.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences to the Company and the participant with
respect to options granted under the 1984 Plan should be the same as those
applicable to options granted under the 1992 Plan, as described above. The 1984
Plan and the options granted thereunder should be covered by certain grandfather
provisions and transition rules under section 162(m) of the Internal Revenue
Code so that compensation income recognized upon the exercise of an option will
be deductible by the Company without regard to the $1 million limitation.
VOTE REQUIRED
Approval of the proposed amendment to the 1984 Plan requires the
affirmative vote of the holders of a majority of the shares of Common Stock
represented at the Meeting.
The Board of Directors recommends a vote FOR the proposed amendment to the
1984 Stock Option Plan.
PROPOSAL 4
APPROVAL OF INCENTIVE BONUS PLAN
INTRODUCTION
On January 26, 1994, the Compensation Committee adopted the Incentive Bonus
Plan subject to approval by the Company's stockholders. The purpose of the plan
is to provide the Chief Executive Officer with incentive bonuses that are
related to and measured by the Company's financial performance. The plan is
intended to satisfy the statutory requirements under section 162(m) of the
Internal Revenue Code for performance-based compensation so that the amounts
paid thereunder will not be subject to the $1 million limitation on the amount
of the executive's annual compensation income which may be deducted by the
Company. If approved by the stockholders, the plan will be applicable to fiscal
years beginning on and after May 2, 1994, unless and until terminated by the
Board of Directors.
DESCRIPTION OF THE PLAN
The Incentive Bonus Plan establishes a linkage between the cash bonus
awards to the executive and the Company's financial performance. For the fiscal
year ending April 30, 1995, and each fiscal year thereafter, until
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<PAGE>
the plan is terminated or the Committee changes the threshold and percentage
requirements for receipt of a bonus payment, the executive will be entitled to
receive 1% of the first tier of the Company's net income before income taxes,
incentive payments due to executives and accounting for minority interests
("Adjusted Net Income") and 2% of the excess of the Company's Adjusted Net
Income over the first tier.
PAYMENT OF AWARDS
Before any award may be paid pursuant to the plan, the Committee must
certify that the performance goals have been achieved and any other requirements
of the plan have been satisfied. If the executive's employment is terminated
before the last day of the fiscal year because of death, disability or
retirement or voluntarily by the executive or by the Company without cause, the
executive will be entitled to receive a bonus computed as though the date the
event occurred were the last day of the fiscal year. If termination of
employment occurs for cause, no award will be paid.
ADMINISTRATION
The plan will be administered by the Committee as long as the composition
of the Committee consists solely of two or more "outside directors" as that term
is defined in section 162(m) of the Internal Revenue Code. The Committee has the
authority to establish performance goals and targets under the plan and may
reduce the amount of, or eliminate entirely, any award if the Committee
determines it is in the best interests of the Company to do so.
AMENDMENT AND TERMINATION
The Board of Directors may amend or terminate the plan at any time as it
deems appropriate; provided that (i) no amendment or termination of the plan
after the end of a fiscal year may increase the awards for the fiscal year just
ended and (ii) to the extent required to meet the requirements under section
162(m) of the Internal Revenue Code for performance-based compensation, any
amendment that makes a material change to the plan must be approved by the
Company's stockholders. The Board of Directors is specifically authorized to
amend the plan as necessary or appropriate to comply with section 162(m) of the
Internal Revenue Code and the regulations issued thereunder.
FEDERAL INCOME TAX CONSEQUENCES
The executive will not incur federal income tax until a payment is made and
will include the amount received in his gross income as compensation income in
the year received.
The Company will usually be entitled to a business expense deduction in the
amount that the executive recognizes compensation income. As previously
discussed, the plan is intended to satisfy the statutory requirements under
section 162(m) of the Internal Revenue Code for performance-based compensation.
If for any reason the plan or the administration thereof is determined not to
meet such requirements for any fiscal year, any cash award paid under the plan
for that year will be subject to the $1 million limit on deductibility.
VOTE REQUIRED
Approval of the plan requires the affirmative vote of the holders of a
majority of the shares of Common Stock represented at the Meeting.
The Board of Directors recommends a vote FOR the proposed Incentive Bonus
Plan.
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PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of its Audit Committee, has
selected Arthur Andersen & Co. as independent public accountants to examine and
report upon the financial statements of the Company and its consolidated
subsidiaries for the year ending April 30, 1995, and is submitting this matter
to the stockholders for their ratification. Arthur Andersen & Co. has served as
the Company's independent public accountants since 1981. One or more
representatives of Arthur Andersen & Co. will be present at the Annual Meeting
of Stockholders to make a statement if they desire to do so and to be available
to respond to appropriate questions that may be asked by stockholders.
The Board of Directors of the Company recommends that you vote FOR the
ratification of the selection of Arthur Andersen & Co. as independent public
accountants to examine and report upon the financial statements of the Company
and its consolidated subsidiaries for the year ending April 30, 1995.
OTHER MATTERS
The Board of Directors does not know of any matter to be brought before the
Meeting, other than the matters described in the Notice of Meeting. If any
matters not set forth in the Notice of Meeting accompanying this proxy statement
are properly brought before the Meeting, the persons named in the enclosed proxy
will vote thereon in accordance with their best judgment.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Company's 1995
Annual Meeting of Stockholders must be received by the Secretary of the Company
for inclusion in the Company's proxy statement and form of proxy relating to
that meeting by March 31, 1995. Any such proposal must meet the applicable
requirements of the Securities Exchange Act of 1934 and the rules and
regulations thereunder.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED MAY 1, 1994, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, CAN BE
OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY, 501 NORTH CHURCH
STREET, SMITHFIELD, VIRGINIA 23430, ATTENTION: AARON D. TRUB, SECRETARY.
By Order of the Board of Directors,
Aaron D. Trub
SECRETARY
July 29, 1994
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EXHIBIT A
SMITHFIELD FOODS, INC.
1992 STOCK INCENTIVE PLAN
(AS AMENDED AND RESTATED)
1. PURPOSE. The Smithfield Foods, Inc. 1992 Stock Incentive Plan (the
"Plan") was adopted May 20, 1992 and approved by stockholders on September 2,
1992. The Plan as amended and restated was adopted April 13, 1994 subject to
stockholder approval as to the amendments to the Plan. The Plan was adopted to
further the long term stability and financial success of Smithfield Foods, Inc.
(the "Company") by attracting and retaining key employees through the use of
stock incentives. It is believed that ownership of Common Stock will stimulate
the efforts of eligible participants upon whose judgment and interest the
Company is and will be largely dependent for the successful conduct of its
business. It is also believed that Options granted to such participants under
this Plan will strengthen their desire to remain with and provide services to
the Company and will further the identification of their interests with those of
the Company's stockholders.
The Plan is intended to conform to the provisions of Securities and
Exchange Commission Rule 16b-3 ("Rule 16b-3").
2. DEFINITIONS. As used in the Plan, the following terms have the meanings
indicated:
(a) "Board" means the board of directors of the Company.
(b) "Change of Control" means:
(i) The acquisition, other than from the Company, by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Securities Exchange
Act of 1934) of 20% or more of either the then outstanding shares of Common
Stock of the Company or the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election
of directors, but excluding for this purpose, any such acquisition by the
Company or any of its subsidiaries, or any employee benefit plan (or
related trust) of the Company or its subsidiaries, or any corporation with
respect to which, following such acquisition, more than 50% of,
respectively, the then outstanding shares of Common Stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or indirectly, by the
individuals and entities who were the beneficial owners, respectively, of
the Common Stock and voting securities of the Company immediately prior to
such acquisition in substantially the same proportion as their ownership,
immediately prior to such acquisition, of the then outstanding shares of
Common Stock of the Company or the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the election of directors, as the case may be; or
(ii) Individuals who, as of the date hereof, constitute the Board (as
of the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any individual
becoming a director subsequent to the date hereof whose election or
nomination for election by the Company's stockholders was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the Company
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under
the Securities Exchange Act of 1934); or
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(iii) Approval by the stockholders of the Company of a reorganization,
merger or consolidation, in each case, with respect to which the
individuals and entities who were the respective beneficial owners of the
Common Stock and voting securities of the Company immediately prior to such
reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
Common Stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such reorganization, merger
or consolidation, or a complete liquidation or dissolution of the Company
or of its sale or other disposition of all or substantially all of the
assets of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Company" means Smithfield Foods, Inc., a Delaware corporation.
(e) "Common Stock" means Common Stock, $.50 par value, of the Company. If
the par value of the Common Stock is changed, or in the event of a change in the
capital structure of the Company (as provided in Section 11), the shares
resulting from such a change shall be deemed to be Common Stock within the
meaning of the Plan.
(f) "Committee" means the committee appointed by the Board as described
under Section 12.
(g) "Date of Grant" means the date on which an Option is granted by the
Committee or a later date specified by the Committee as the date the grant is to
become effective.
(h) "Disability" or "Disabled" means a mental or physical condition that
prevents a Participant from rendering the services for which he was employed.
The Committee shall determine whether a Disability exists and such determination
shall be conclusive.
(i) "Fair Market Value" means as of the Date of Grant (or, if there were no
trades on the Date of Grant, the last preceding day on which Common Stock is
traded) (i) if the Common Stock is traded on an exchange the average of the
highest and lowest registered sales prices of the Common Stock at which it is
traded on such day on the exchange on which it generally has the greatest
trading volume, or (ii) if the Common Stock is traded on the over-the-counter
market, the average between the lowest and highest sales prices as reported by
NASDAQ.
(j) "Insider" means a person subject to Section 16(b) of the Securities
Exchange Act of 1934.
(k) "Nonstatutory Stock Option" means an Option, which does not meet the
requirements of Section 422 of the Code, or even if meeting the requirements of
Section 422 of the Code, is not intended to be an incentive stock option and is
so designated.
(l) "Option" means a right to purchase Common Stock granted under the Plan,
at a price determined in accordance with the Plan.
(m) "Parent" means, with respect to any corporation, a "parent corporation"
of that corporation within the meaning of Section 424(e) of the Code.
(n) "Participant" means any person who receives an Option under the Plan.
(o) "Rule 16b-3" means Rule 16b-3 of the Securities and Exchange Commission
promulgated under the Securities Exchange Act of 1934. A reference in the Plan
to Rule 16b-3 shall include a reference to any corresponding rule (or number
redesignation) of any amendments to Rule 16b-3 enacted after the effective date
of the Plan's adoption.
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(p) "Subsidiary" means, with respect to any corporation, a "subsidiary
corporation" of that corporation within the meaning of Section 424(f) of the
Code.
3. GENERAL. Options granted under the Plan shall be Nonstatutory Stock
Options.
4. STOCK. Subject to Section 11 of the Plan, there shall be reserved for
issuance under the Plan an aggregate of 1,250,000 shares of Common Stock, which
shall be authorized, but unissued shares. Shares allocable to options awarded
under the Plan, that expire or terminate unexercised may be subjected to an
Option under the Plan.
5. ELIGIBILITY.
(a) All present and future management employees and other employees who are
in a position to contribute to the success of the Company (or any Parent or
Subsidiary of the Company, whether now existing or hereafter created or
acquired) shall be eligible to receive an Option under the Plan. The Committee
shall have the power and complete discretion, as provided in Section 12, to
select persons to receive Options and, subject to the provisions of Section 6,
to determine for each Participant the terms and conditions and the number of
shares to be allocated to each Participant as part of each Option.
(b) The grant of an Option shall not obligate the Company or any Parent or
Subsidiary of the Company to pay a Participant any particular amount of
remuneration, to continue the employment of the Participant after the grant or
to make further grants to the Participant at any time thereafter.
6. STOCK OPTIONS.
(a) Whenever the Committee deems it appropriate to grant Options, notice
shall be given to a Participant stating the number of shares for which Options
are granted and the conditions to which the grant and exercise of the Options
are subject. This notice, when duly accepted in writing by the Participant,
shall become a stock option agreement between the Company and the Participant.
(b) The exercise price of shares of Common Stock covered by an Option shall
be not less than 100% of the Fair Market Value of such shares on the Date of
Grant.
(c) Options not otherwise exercisable because the five-year period from the
date of grant has not expired will become automatically exercisable (i) if a
Change of Control occurs, or (ii) on the day immediately preceding the
Distribution Date under the amended Rights Agreement between the Company and
First Union National Bank of North Carolina, Rights Agent, dated as of January
31, 1994, as amended from time to time.
(d) Options may be exercised in whole or in part at such times as may be
specified by the Committee in the Participant's stock option agreement; provided
that the exercise provisions for Options shall in all events not be more liberal
than the following provisions:
(i) No Option shall be exercisable sooner than five years from the
Date of Grant.
(ii) No Option may be exercised after the first to occur of (x) ten
years from the Date of Grant, (y) three months following the date of the
Participant's retirement or termination of employment with the Company and
its Parent and Subsidiary corporations for reasons other than Disability or
death, or (z) one year following the date of the Participant's termination
of employment on account of Disability or death.
(iii) Except as otherwise provided in this paragraph, no Option may be
exercised unless the Participant is employed by the Company or a Parent or
Subsidiary of the Company at the time of the exercise (or was so
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employed not more than three months before the time of the exercise) and
has been employed by the Company or a Parent or Subsidiary of the Company
at all times since the Date of Grant. If a Participant's employment is
terminated other than by reason of his Disability or death at a time when
the Participant holds an Option that is exercisable (in whole or in part),
the Participant may exercise any or all of the exercisable portion of the
Option (to the extent exercisable on the date of termination) within three
months after the Participant's termination of employment. If a
Participant's employment is terminated by reason of his Disability at a
time when the Participant holds an Option that is exercisable (in whole or
in part), the Participant may exercise any or all of the exercisable
portion of the Option (to the extent exercisable on the date of Disability)
within one year after the Participant's termination of employment. If a
Participant's employment is terminated by reason of his death at a time
when the Participant holds an Option that is exercisable (in whole or in
part), the Option may be exercised (to the extent exercisable on the date
of death) within one year after the Participant's death by the person to
whom the Participant's rights under the Option shall have passed by will or
by the laws of descent and distribution.
(e) The maximum number of shares with respect to which Nonstatutory Options
may be granted in any calendar year to an employee eligible to participate in
the Plan is 100,000.
7. METHOD OF EXERCISE OF OPTIONS.
(a) Options may be exercised by written notice of the exercise given by the
Participant to the Company, stating the number of shares the Participant has
elected to purchase under the Option. Such notice shall be effective only if
accompanied by the exercise price in full in cash; provided that if the terms of
the Option so permit, the Participant may (i) deliver shares of Common Stock
that the Participant has owned for at least six months (valued at their Fair
Market Value at the date of exercise), or cause to be withheld from the Option
Shares, shares of Common Stock (valued at their Fair Market Value on the date of
exercise), in satisfaction of all or any part of the exercise price, or (ii)
deliver a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of the
sale or loan proceeds to pay the exercise price.
(b) The Company may place on any certificate representing Common Stock
issued upon the exercise of an Option any legend deemed desirable by the
Company's counsel to comply with federal or state securities laws, and the
Company may require a customary written indication of the Participant's
investment intent. Until the Participant has made any required payment,
including any applicable withholding taxes, and has had issued a certificate for
the shares of Common Stock acquired, the Participant shall possess no
stockholder rights with respect to the shares.
(c) As an alternative to making a cash payment to the Company to satisfy
his tax withholding obligations, if the Option so provides or is amended to so
provide, the Committee may establish procedures permitting the Participant to
elect to (i) deliver shares of already owned Company Stock or (ii) have the
Company retain that number of shares of Company Stock that would satisfy all or
a specified portion of the Federal, state and local tax liabilities of the
employee arising in the year of its exercise upon the exercise of a Nonstatutory
Stock Option. Any such election shall be made only in accordance with procedures
established by the Committee.
(d) Notwithstanding anything herein to the contrary, Options shall always
be granted and exercised in such a manner as to conform to the provisions of
Rule 16b-3, or any replacement rule adopted, as the same now exists or may, from
time to time, be amended.
8. NONTRANSFERABILITY OF OPTIONS. Options, by their terms, shall not be
transferable except by will or by the laws of descent and distribution or, if
permitted by Rule 16b-3, pursuant to a Qualified Domestic Relations Order (as
defined in Section 414(p) of the Code ("QDRO") and shall be exercisable, during
the Participant's lifetime,
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only by the Participant or, if permitted by Rule 16b-3, an alternative payee
under a QDRO or by his guardian, duly authorized attorney-in-fact or other legal
representative.
9. EFFECTIVE DATE OF THE PLAN. The Plan shall be effective on May 20, 1992
and shall be submitted to the stockholders of the Company for approval. Until
the Plan has been approved by the Company's stockholders, no Option shall be
exercisable.
10. TERMINATION, MODIFICATION, CHANGE. If not sooner terminated by the
Board, this Plan shall terminate at the close of business on May 19, 2002. No
Options shall be made under the Plan after its termination. The Board may
terminate the Plan or may amend the Plan in such respects as it shall deem
advisable; provided, that, if and to the extent required by Rule 16b-3, no
change shall be made that increases the total number of shares of Common Stock
reserved for issuance pursuant to Options granted under the Plan (except
pursuant to Section 11), materially modifies the requirements as to eligibility
for participation in the Plan, or materially increases the benefits accruing to
Participants under the Plan, unless such change is authorized by the
stockholders of the Company. Notwithstanding the foregoing, the Board may amend
the Plan and unilaterally amend Options as it deems appropriate to ensure
compliance with Rule 16b-3. Except as provided in the preceding sentence, a
termination or amendment of the Plan shall not, without the consent of the
Participant, detrimentally affect a Participant's rights under an Option
previously granted to him.
11. CHANGE IN CAPITAL STRUCTURE.
(a) In the event of a stock dividend, stock split or combination of shares,
recapitalization or merger in which the Company is the surviving corporation or
other change in the Company's capital stock (including, but not limited to, the
creation or issuance to stockholders generally of rights, options or warrants
for the purchase of Common Stock or preferred stock of the Company), the number
and kind of shares of stock or securities of the Company to be subject to the
Plan and to Options then outstanding or to be granted thereunder, the maximum
number of shares or securities which may be delivered under the Plan, the
exercise price and other relevant provisions shall be appropriately adjusted by
the Committee, whose determination shall be binding on all persons. If the
adjustment would produce fractional shares with respect to any unexercised
Option, the Committee may adjust appropriately the number of shares covered by
the Option so as to eliminate the fractional shares.
(b) If the Company is a party to a consolidation or a merger in which the
Company is not the surviving corporation, a transaction that results in the
acquisition of substantially all of the Company's outstanding stock by a single
person or entity, or a sale or transfer of substantially all of the Company's
assets, the Committee may take such actions with respect to outstanding Options
as the Committee deems appropriate.
(c) Notwithstanding anything in the Plan to the contrary, the Committee may
take the foregoing actions without the consent of any Participant, and the
Committee's determination shall be conclusive and binding on all persons for all
purposes.
12. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a
Committee consisting of not less than two Directors of the Company, who are
"outside directors", as that term is defined for purposes of Code section
162(m), who meet the requirements of paragraph (d) below and are appointed by
the Board. Subject to the foregoing requirements, the Committee shall be the
Compensation Committee unless the Board shall appoint another Committee to
administer the Plan. The Committee shall have general authority to impose any
limitation or condition upon an Option the Committee deems appropriate to
achieve the objectives of the Option and the Plan and, in addition, and without
limitation and in addition to powers set forth elsewhere in the Plan, shall have
the following specific authority:
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(a) The Committee shall have the power and complete discretion to
determine (i) which Participants shall receive an Option, (ii) the number
of shares of Common Stock to be covered by each Option, (iii) the fair
market value of Common Stock, (iv) the time or times when an Option shall
be granted, (v) whether an Option shall become vested over a period of time
and, subject to the terms of the Plan, when it shall be fully vested, (vi)
whether a Disability exists, (vii) the manner in which payment will be made
upon the exercise of Options, (viii) conditions relating to the length of
time before disposition of Common Stock received upon the exercise of
Options is permitted, and (ix) any additional requirements relating to
Options that the Committee deems appropriate. The Committee shall also have
the power to amend the terms of previously granted Options so long as the
terms as amended are consistent with the terms of the Plan and provided
that the consent of the Participant is obtained with respect to any
amendment that would be detrimental to him, except that such consent will
not be required if such amendment is for the purpose of complying with Rule
16b-3.
(b) The Committee may adopt rules and regulations for carrying out the
Plan. The interpretation and construction of any provision of the Plan by
the Committee shall be final and conclusive. The Committee may consult with
counsel, who may be counsel to the Company, and shall not incur any
liability for any action taken in good faith in reliance upon the advice of
counsel.
(c) A majority of the members of the Committee shall constitute a
quorum, and all actions of the Committee shall be taken by a majority of
the members present. Any action may be taken by a written instrument signed
by all of the members, and any action so taken shall be fully effective as
if it had been taken at a meeting.
(d) The Board from time to time may appoint members previously
appointed and may fill vacancies, however caused, on the Committee. Insofar
as it is necessary to satisfy the requirements of Section 16(b) of the
Exchange Act, no member of the Committee shall be eligible to participate
in the Plan or in any other plan of the Company or any Parent or Subsidiary
of the Company that entitles Participants to acquire stock, stock options
or stock appreciation rights of the Company or any Parent or Subsidiary of
the Company, and no person shall become a member of the Committee if,
within the preceding one-year period, the person shall have been eligible
to participate in such a plan (other than a "safe harbor plan" permitted
under Rule 16b-3(C)(2)(i) and (ii)).
13. NOTICE. All notices and other communications required or permitted to
be given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid, as
follows (a) if to the Company -- at its principal business address to the
attention of the Treasurer; (b) if to any Participant -- at the last address of
the Participant known to the sender at the time the notice or other
communication is sent.
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SMITHFIELD FOODS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joseph W. Luter, III, Richard J. Holland and
Aaron D. Trub, and each of them, proxies with full power of substitution to vote
the shares of Common Stock of Smithfield Foods, Inc. which the undersigned would
be entitled to vote if personally present at the Annual Meeting of Stockholders
of the Company to be held on August 31, 1994 or any adjournments thereof.
1. ELECTION OF DIRECTORS. FOR all nominees listed below WITHHELD AUTHORITY to
(except as marked to the vote for all nominees
contrary below) listed below
Joseph W. Luter, III F. J. Faison, Jr. Joel W. Greenberg
Cecil W. Gwaltney George E. Hamilton, Jr.
Richard J. Holland Roger R. Kapella Lewis R. Little Robert W. Manly
Wendell H. Murphy William H. Prestage Aaron D. Trub
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
2. PROPOSAL TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S 1992
STOCK INCENTIVE PLAN.
FOR AGAINST ABSTAIN
3. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S 1984 STOCK OPTION PLAN.
FOR AGAINST ABSTAIN
<PAGE>
4. PROPOSAL TO APPROVE THE COMPANY'S INCENTIVE BONUS PLAN.
FOR AGAINST ABSTAIN
5. PROPOSAL TO RATIFY THE SELECTION OF ARTHUR ANDERSEN & CO. AS INDEPENDENT
PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING APRIL 30,
1995.
FOR AGAINST ABSTAIN
6. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" THE ELECTION OF EACH OF THE NOMINEES NAMED IN PROPOSAL 1 AND
"FOR" PROPOSALS 2, 3, 4 AND 5.
The undersigned acknowledges receipt of the Notice of said Annual Meeting
and of the Proxy Statement attached thereto.
Dated ............., 1994
.........................
PLEASE SIGN EXACTLY AS NAME APPEARS
AT LEFT. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE,
GUARDIAN, ETC., GIVE FULL TITLE AS
SUCH.
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD USING THE ENCLOSED
ENVELOPE.
<PAGE>
SMITHFIELD FOODS, INC.
Stock Option Plan (1984)
I. ESTABLISHMENT OF THE PLAN.
Smithfield Foods, Inc. (hereinafter called the "Company") hereby
establishes a Stock Option Plan (1984) (hereinafter called the "Plan") upon
the terms and conditions hereinafter stated.
II. PURPOSES OF THE PLAN.
The purposes of the Plan are: (1) to encourage stock ownership by
key employees of the Company and its Subsidiary Companies so that they will
have a proprietary interest in the Company; (2) to provide an incentive for
such employees to expand and improve the growth and prosperity of the
Company and its Subsidiary Companies; and (3) to assist the Company and its
Subsidiary Companies in attracting and retaining key employees.
III. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company.
(b) "Common Stock" means shares of the common stock, $.50 par
value, of the Company.
(c) "Committee" means any administrative committee established by
the Board pursuant to Article IV hereof.
(d) "Grantee" means an individual to whom an Option is granted
under the Plan.
(e) "Option" means a right granted to purchase Common Stock under
the Plan.
(f) "Subsidiary Company" means a subsidiary of the Company which
meets the definition of a "subsidiary corporation" in Section 425(f) of the
Internal Revenue Code at the time of granting of the Option in question.
(g) "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended.
(h) "Fair Market Value" of the Company's Common Stock on a certain
date means the mean between the highest bid and the lowest offer for such
stock in the National Association of Securities Dealers Automated Quotation
System on the date specified or, if the Company's Common Stock was not
traded in the National Association of Securities Dealers Automated
Quotation System on such date, on the next preceding date on which the
Common Stock was traded.
IV. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by a Committee of not less than three
directors of the Company, none of whom shall be an officer or other
salaried employee of the Company or any Subsidiary Company, who shall be
appointed by and shall serve at the pleasure of the Board. The Committee
shall have and exercise all of the powers and authorities granted to it by
the Board consistent with the provisions of the Plan. The Committee shall
act by vote or written consent of a majority of its members. Subject to
the express provisions and limitations of the Plan, the Committee may adopt
such rules, regulations and procedures as it deems advisable for the
conduct of its affairs and may appoint one of its members chairman and any
person, whether or not a member, to be its secretary or agent. The
decisions of the Committee shall be final and binding unless otherwise
determined by the Board. No member of the Committee and no member of the
Board shall be liable for any action taken or determination made in good
faith.
V. ELIGIBILITY.
The individuals to whom options may be granted shall be key
employees of the Company or of a Subsidiary Company (including employees
who are officers, whether or not also directors, but excluding directors
who are not also employees or officers). No Options shall be granted to
any person who is not an officer of the Company or of a Subsidiary Company
or a full-time salaried employee of the Company or of a Subsidiary Company.
VI. COMMON STOCK SUBJECT TO OPTIONS.
The aggregate number of share of Common Stock which may be issued
pursuant to Options granted under the Plan shall not exceed 350,000 shares,
which number of shares is subject to adjustment as hereinafter provided in
Article IX. The Board or Committee shall have full authority to direct the
proper officers of the Company to issue or transfer shares of the Company's
Common Stock pursuant to the exercise of an Option granted under the Plan.
If an Option as to any shares is surrendered before exercise, or shall
expire or terminate for any reason without having been exercised in full,
or for any other reason ceases to be exercisable, the number of unpurchased
shares covered thereby shall, unless the Plan shall have been terminated,
become available for the granting of Options under the Plan within the
aggregate maximum stated above.
VII. DESIGNATION OF GRANTEES.
The Committee shall determine from time to time which of those
eligible individuals will be granted Options under the Plan and the number
of shares of Common Stock which may be purchased under each Option. In
making such determination there shall be taken into account the duties and
responsibilities of each respective individual, his present and potential
contributions to the growth and success of the Company or of a Subsidiary
Company, and such other factors as shall be deemed relevant to
accomplishing the purposes of the Plan. The Committee shall not be
precluded from granting an Option to any eligible individual solely because
such individual may previously have been granted an Option under the Plan.
VIII. TERMS OF THE OPTION.
Both incentive stock options and nonqualified stock options may be
granted under the Plan. Options granted as incentive stock options will be
identified as such.
Each Option granted under the Plan shall be on the following terms
and conditions.
A. Number of Shares and Option Price.
Each Option granted pursuant to the Plan shall state the total
number of shares of Common Stock to which it pertains. The purchase price
shall be one hundred percent (100%) of the Fair Market Value of the Common
Stock of the Company at the time such Option is granted or such higher
price as the Committee may establish as to any or all shares subject to any
Option.
B. Duration of Option.
No Option shall be exercisable after the expiration of ten years
from the date it is granted or such shorter period as the Committee may
establish as to any or all shares subject to any Option and shall terminate
on the date on which the Grantee ceases to be employed by the Company or a
Subsidiary Company except as hereinafter provided.
If a Grantee's termination of employment with the Company or a
Subsidiary Company is due to any reason other than his death, he may, at
any time within three months after such termination of employment, exercise
any Option to the extent that he was entitled to exercise it on the date of
such termination of employment, but in no event shall the Option be
exercisable more than ten years from the date it was granted.
If a Grantee dies while in the employment of the Company or a
Subsidiary Company, or within three months after having ceased to be
employed by the Company or a Subsidiary Company, and without having fully
exercised all his Options, the executors or administrators or legatees or
distributees of his estate shall have the right; during the one-year period
following his death, to exercise such Options to the extent such deceased
Grantee was entitled to exercise them on the date of his death, but in no
event shall any Option be exercisable more than ten years from the date it
was granted.
C. Nonassignability.
Options shall not be transferable and during a Grantee's lifetime
shall be exercisable only by such Grantee, except that Options may be
transferred by will or by the laws of descent and distribution and shall be
exercisable after the Grantee's death as provided in this Article VIII.
D. Payment for Shares.
Payment in full in cash or cash equivalents of the purchase price
for the shares purchased pursuant to the exercise of any Option shall be
made upon exercise of the Option. All shares sold under the Plan shall be
fully paid and nonassessable.
E. Manner of Exercise.
Each Option granted under the Plan may be exercised, subject to such
overall limitations as are provided herein, only to the extent of one-fifth
of the total number of optioned shares after the expiration of one year
following the date the Option is granted; only to the extent of two-fifths
of the total number of optioned shares after the expiration of two years
following the date the Option is granted; only to the extent of three-
fifths of the total number of optioned shares after the expiration of three
years following the date the Option is granted; only to the extent of four-
fifths of the total number of optioned shares after the expiration of four
years following the date the Option is granted; and in full only after the
expiration of five years following the date the Option is granted. In the
event that both incentive and nonqualified options are granted to an
employee, the installment period exercise schedule described above will not
apply separately to the incentive stock option and the nonqualified option
portion of the award, but will apply to the total number of optioned shares
in the aggregate.
Each partial exercise of an Option shall be for 100 shares or a
multiple thereof, or for all the remaining shares thereunder, whichever is
the lesser. The procedures for exercise shall be in the written option
certificate provided for herein.
F. Voting and Dividend Rights.
No Grantee of an Option shall have any voting or dividend rights or
any other rights of a stockholder in respect of any shares of Common Stock
covered by an Option prior to the time that his name is recorded on the
Company's stockholder ledger as the holder of record of such shares
acquired pursuant to an exercise of an Option.
G. Sale of Shares.
Each Grantee purchasing shares pursuant to the exercise of an Option
granted hereunder shall be required (unless the Company has made an
effective registration of the securities offered under the Plan pursuant to
the Securities Act of 1933) to represent to the Company at that time that
he is acquiring such shares for investment purposes and not with a view to
their sale or distribution, and each certificate for such shares shall have
printed or stamped thereon appropriate language, as determined by the Board
or Committee uniformly, stated such restriction.
The proper officers of the Company shall execute and deliver written
option certificates which shall contain such provisions as expressly
provided herein and such additional provisions as may be deemed appropriate
and not inconsistent with any of the express provisions of the Plan.
In addition to satisfying the aforementioned terms and conditions,
incentive stock options granted under the Plan shall be on the following
terms and conditions:
H. Sequential Exercise Requirement.
An incentive stock option granted under the Plan before January 1,
1987 may not be exercised while there is outstanding (within the meaning of
Section 422A(c)(7) of the Internal Revenue Code of 1954, as amended (the
"1954 Code")) any prior incentive stock option within the meaning of
Section 422A(b) of the 1954 Code.
I. Maximum Incentive Stock Option Grant.
The aggregate fair market value of incentive stock options
(determined as of the date the Option is granted) of the stock for which an
employee may be granted incentive stock options in any calendar year before
1987 (under all such plans of the Company and its Subsidiary Companies)
shall not exceed $100,000 plus any unused limit carryover (as defined by
Section 422A(c)(4) of the 1954 Code) for that year. The unused limit
carryover is one-half of the amount by which $100,000 exceeds the aggregate
fair market value of Options (determined at the time the Option is granted)
of the stock for which an employee was granted incentive stock options in
any one calendar year which may be taken into account in any succeeding
calendar year. The amount of the unused limit carryover from any calendar
year which may be taken into account in any succeeding calendar year is the
amount of carryover reduced by the amount of such carryover which was used
in prior calendar years. Unused limit carryover shall be applied in the
order of the calendar years in which the carryovers arose. Unused limit
carryovers not used before the end of three calendar years following the
calendar year in which the unused carryover arose shall expires.
With respect to incentive stock options granted after December 31,
1986, the aggregate fair market value (determined as of the date the option
is granted) of the stock with respect to which incentive stock options are
exercisable for the first time by the Optionee in any calendar year (under
the Plan and all stock option plans of the Optionee's employer corporation
and its parent and subsidiary corporations within the meaning of Section
422A(b)(7) of the Internal Revenue Code shall not exceed $100,000.
J. Shareholder Limitation.
No incentive stock options shall be granted to an employee of the
Company or of a Subsidiary Company who would be ineligible to receive an
incentive stock option by reason of the provisions of Section 422A(b)(6) of
the Internal Revenue Code (related to stock ownership or voting power of
more than ten percent). The above sentence shall not apply if at the time
such Option is granted the Option price is at least 110 percent of the fair
market value of the stock subject to the Option and such Option by its
terms is not exercisable after the expiration of five year from the date
such Option is granted.
IX. EFFECT OF CHANGE IN COMMON STOCK SUBJECT TO THE PLAN AND ISSUANCE OR
ASSUMPTION TO WHICH SECTION 425(a) APPLIES.
The aggregate number of shares of Common Stock available for Option
under the Plan, the shares subject to any Option, and the price per share,
shall be proportionately adjusted for any increase or decrease in the
number of shares of Common Stock issued subsequent to the effective date of
the Plan, resulting from a subdivision or consolidation of shares or any
other capital adjustment, the payment of a stock dividend, or other
increase or decrease in such shares effected without receipt of
consideration by the Company.
A change in the number of shares, and/or a change in the price per
share, subject to an Option shall be made provided (a) such change arises
on account of a "corporate transaction" as defined in Treasury Regulations
(Section 1.425-1(a)(1)(ii), (b) the excess of the aggregate fair market
value (determined immediately after such corporate transaction) of the
shares subject to the Option immediately after such change over the
aggregate new Option price of such shares is not more than the excess of
the aggregate fair market value of the shares subject to the Option
immediately before the transaction over the aggregate former Option price
of such shares, (c) the ratio of the Option price immediately after the
change to the fair market value of the stock subject to the Option
immediately after the corporate transaction is not more favorable to the
Grantee on a share-by-share comparison than the ratio of the old Option
price to the fair market value of the stock subject to the Option
immediately before such transaction, (d) the Option after such change does
not give the Grantee additional benefits which he did not have before such
change, and (e) such change does not constitute a modification of the
Option within the meaning of Section 425 of the Internal Revenue Code.
If the Company or a Subsidiary Company issues or assumes a stock
option in a transaction to which Section 425(a) of the Internal Revenue
Code applies, the per share option price, the date or dates of exercise,
and the other provisions of such option shall be as fixed by the Board so
as to meet the requirements of that section.
X. AMENDMENT AND DISCONTINUANCE.
The Board may, by resolution, terminate, amend or revise the Plan
with respect to any shares as to which Options have not been granted;
provided, however, that without the approval of the stockholders no
amendment shall change the maximum number of shares to be offered for sale
under Options in the aggregate (except in accordance with the provisions of
Article IX); reduce the Option price per share below the minimum price set
forth in Article VIII (except in accordance with the provisions of Article
IX); change the class of employees eligible to participate; extend the term
of the Plan; or materially increase the benefits accruing to eligible
employees under the Plan.
XI. EFFECTIVE DATE OF THE PLAN; TERM.
This Plan shall become effective beginning May 10, 1984, such
effectiveness to be subject to the affirmative vote of a majority of all of
the outstanding shares present in person or by proxy at the Annual Meeting
of Stockholders of the Company in 1984. Unless sooner terminated, the Plan
shall remain in effect for a period of ten (10) years from May 10, 1984.
Termination of the Plan shall not affect any Options previously granted and
such Options shall remain in effect until they have been fully exercised,
are surrendered, or by their terms expire.
XII. EMPLOYMENT RIGHTS.
Neither the Plan, nor the grant of any Options hereunder nor any
action taken by the Committee or the Board in connection with the Plan
shall create any right on the part of any employee of the Company or a
Subsidiary Company to continue in the employ of the Company or a Subsidiary
Company.
XIII. REGULATORY COMPLIANCE.
Each of the incentive stock options granted pursuant to the Plan is
intended to qualify as an "incentive stock option" as defined in Section
422A of the Internal Revenue Code, and the Plan shall be interpreted and
applied in accordance with this intention.
The Plan is intended to comply with Rule 16b-3 under the Securities
Exchange Act of 1934. Any provision inconsistent with such Rule shall be
inoperative and shall not affect the validity of the Plan.
<PAGE>
061694
AMENDMENT
TO
SMITHFIELD FOODS, INC.
STOCK OPTION PLAN (1984)
The Smithfield Foods, Inc. Stock Option Plan (1984) (the "1984
Plan") was adopted by the Smithfield Foods, Inc. Board of Directors on May
10, 1984 and approved by stockholders on August 30, 1984.
The Board of Directors desires to amend the 1984 Plan to provide for
alternative methods of purchasing shares and paying applicable withholding
taxes upon the exercise of an option. In order to accomplish these
objectives, the Board adopted the following amendment on April 13, 1994,
subject to approval by the stockholders of Smithfield Foods, Inc.:
XIV. Article VIII, Section D is hereby amended to read as follows:
D. Payment for Shares.
Options may be exercised by written notice of the exercise
given by the Grantee to the Company, stating the number of shares
the Grantee has elected to purchase under the Option. Such notice
shall be effective only if accompanied by the exercise price in full
in cash; provided that if the terms of the Option so permit, the
Grantee may (i) deliver shares of Common Stock that the Grantee has
owned for at least six months (valued at their Fair Market Value at
the date of exercise), or cause to be withheld from the Option
Shares, shares of Common Stock (valued at their Fair Market Value on
the date of exercise), in satisfaction of all or any part of the
exercise price, or (ii) deliver a properly executed exercise notice
together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of the sale or loan proceeds to
pay the exercise price.
The Company may place on any certificate representing
Common Stock issued upon the exercise of an Option any legend deemed
desirable by the Company's counsel to comply with federal or state
securities laws, and the Company may require a customary written
indication of the Grantee's investment intent. Until the Grantee
has made any required payment, including any applicable withholding
taxes, and has had issued a certificate for the shares of Common
Stock acquired, the Grantee shall possess no stockholder rights with
respect to the shares.
As an alternative to making a cash payment to the Company
to satisfy his tax withholding obligations, if the Option so
provides or is amended to so provide, the Committee may establish
procedures permitting the Grantee to elect to (i) deliver shares of
already owned Company Stock or (ii) have the Company retain that
number of shares of Company Stock that would satisfy all or a
specified portion of the federal, state and local tax liabilities of
the employee arising in the year of its exercise upon the exercise
of a Nonstatutory Stock Option. Any such election shall be made
only in accordance with procedures established by the Committee.
Notwithstanding anything herein to the contrary, Options
shall always be granted and exercised in such a manner as to conform
to the provisions of Rule 16b-3, or any replacement rule adopted, as
the same now exists or may, from time to time, be amended.
XV. Except as hereby amended, the 1984 Plan remains in effect as to
outstanding options still exercisable.
XVI. The amendments made hereby shall not be effective unless and
until approved by the stockholders of Smithfield Foods, Inc.
<PAGE>
SMITHFIELD FOODS, INC.
INCENTIVE BONUS PLAN
1. Purpose. Smithfield Foods, Inc. hereby establishes an Incentive
Bonus Plan (the "Plan") applicable to Joseph W. Luter, III, as President
and Chief Executive Officer of the Company ("Executive"). The Company
intends to provide the Executive with incentive bonuses that are related to
and measured by the Company's performance under a program intended to meet
the requirements of Code section 162(m) and regulations thereunder. The
Plan was adopted by the Committee and ratified by the Board on January 26,
1994 and is subject to approval of the Company's stockholders. The Plan is
effective as of May 3, 1993.
2. Definitions. As used in the Plan, the following terms have the
meanings indicated.
(a) "Auditor" means the independent public accounting firm then
employed by the Company to prepare the Company's financial statements.
(b) "Beneficiary" means the person or persons designated by the
Executive in a writing filed with the Company to receive his Bonus
Payment upon his death.
(c) "Board" means the board of directors of the Company.
(d) "Bonus Base" means the consolidated net income of the
Company and its subsidiaries prepared in accordance with generally
accepted accounting principles before (i) Bonus Payments to Executive,
(ii) accounting for minority ownership interests in subsidiaries,
(iii) incentive payments due officers based on income approved by the
Board, and (iv) applicable federal and state income taxes.
(e) "Bonus Payment" means the amount due the Executive under the
Bonus Plan, as computed by the Company, and certified by the
Committee.
(f) "Cause" means (i) continued neglect by Executive of his
employment duties (as reasonably determined by the Company's Board of
Directors) after delivery of written notice thereof to Executive
specifying with particularity the duties Executive has neglected, (ii)
willful misconduct in connection with the performance of Executive's
duties, including by way of example but without limitation,
intentional misappropriation of funds or property of the Company or
any of its subsidiaries, or securing or attempting to secure
personally any profit in connection with any transaction entered into
on behalf of the Company or any of its subsidiaries, (iii) conduct by
Executive that would result in material injury to the reputation of
the Company or any of its subsidiaries (whether publicly known or
unknown), including by way of example but without limitation, pleading
guilty to or conviction of a felony involving moral turpitude, or (iv)
certification by a physician that Executive is unable to regularly
perform his duties hereunder by reason of Executive's addiction to
alcohol or a controlled substance.
(g) "Code" means the Internal Revenue Code of 1986, as amended,
and regulations thereunder.
(h) "Committee" means two or more directors appointed by the
Board who are "outside directors" within the meaning of section 162(m)
of the Internal Revenue Code. The Committee may be a duly appointed
sub-committee of the Compensation Committee.
(i) "Company" means Smithfield Foods, Inc., a Delaware
corporation.
(j) "Disabled" means, in general, the inability to perform the
services for which the Executive was employed. The Committee shall
determine whether a Disability exists and such determination shall be
conclusive.
(k) "Executive" means Joseph W. Luter, III.
(l) "1993 Bonus Plan" means the incentive bonus plan covering
the Executive adopted by the Board on January 18, 1993 as in effect
for the calendar year 1993.
(m) "Transition Payments" means the portion of the aggregate
payments made to the Executive pursuant to the 1993 Bonus Plan with
respect to the Bonus Base for the period May 3 through January 2,
1994, computed in accordance with the 1993 Bonus Plan.
3. Incentive Bonuses.
(a) Executive shall be entitled to receive as a Bonus Payment
with respect to the fiscal year beginning May 3, 1993 and ending May 1,
1994, an amount in cash equal to the sum of (i) 1% of the first $15,000,000
of the Bonus Base, and (ii) 2% of the excess of the Bonus Base over
$15,000,000, less (iii) any Transition Payments.
(b) Subject to (c), Executive shall be entitled to receive as a
Bonus Payment with respect to the fiscal year beginning May 2, 1994 and
ending April 30, 1995, and each fiscal year thereafter, and until the Plan
is terminated by the Company, an amount in cash equal to the sum of (1) 1%
of the first $15,000,000 of the Bonus Base, and (2) 2% of the excess of the
Bonus Base over $15,000,000.
(c) The Committee may before the first day of each fiscal year
beginning on or after May 2, 1994, establish such other threshold and
percentage requirements for receipt of a Bonus Payment as the Committee
shall deem appropriate.
(d) Notwithstanding the provisions of (a) and (b), the Committee
expressly reserves the right to reduce or eliminate entirely any Bonus
Payment if it determines it is in the best interests of the Company to do
so. Such determination shall be conclusive and binding.
4. Payment of Incentive Bonuses. The Bonus Payment will be made (i)
after the date the Company's audited financial statements have been
certified by the Auditor for the relevant fiscal year of computation and
the Committee has certified that the performance criteria have been met,
and (ii) before the date by which the Bonus Payment must be made to be
otherwise deductible by the Company.
5. Termination of Employment. If Executive ceases to be employed,
his right to receive a Bonus Payment shall be governed by the following
principles:
(a) If the termination occurs as a result of death, Disability,
termination by the Company without Cause, retirement or voluntarily by
the Executive, the Executive (or the Executive's Beneficiary in the
event of death) shall be entitled to receive an amount equal to the
Bonus Payment Executive would have received if the last day of the
fiscal year coincided with the date of Executive's termination of
employment, computed based on unaudited financial information.
(b) If the termination of employment occurs for Cause, the
Executive shall forfeit all rights to a Bonus Payment for the fiscal
year in which such termination of employment occurs.
6. Administration.
(a) The Plan shall be administered by the Compensation Committee
of the Board of Directors (the "Committee"), which shall be comprised
solely of two or more "outside directors", as that term is defined for
purposes of Code section 162(m).
(b) The Board from time to time may appoint members previously
appointed and may fill vacancies, however caused, in the Committee.
Insofar as it is necessary to satisfy the requirements of Section 16(b) of
the Securities Exchange Act of 1934, no member of the Committee shall be
eligible to participate in the Plan or in any other similar plan of the
Company or any Parent or Subsidiary of the Company.
(c) If any member of the Committee fails to qualify as an
"outside director" or otherwise meet the requirements of this section, such
person shall immediately cease to be a member of the Committee solely for
purposes of the Plan and shall not take part in future Committee
deliberations.
(d) The Committee may adopt rules and regulations for carrying
out the Plan, and the Committee may take such actions as it deems
appropriate to ensure that the Plan is administered in the best interests
of the Company. The Committee has the authority to construe and interpret
the Plan, resolve any ambiguities, and make determinations with respect to
the eligibility for or amount of any award. The interpretation,
construction and administration of the Plan by the Committee shall be final
and conclusive. The Committee may consult with counsel, who may be counsel
to the Company, and shall not incur any liability for any action taken in
good faith in reliance upon the advice of counsel.
7. Rights. Participation in the Plan and the right to receive cash
awards under the Plan shall not give Executive any proprietary interest in
the Company, any subsidiary or any of their assets. No trust fund shall be
created in connection with the Plan, and there shall be no required funding
of amounts that may become payable under the Plan. Executive shall for all
purposes be a general creditor of the Company. The interests of Executive
cannot be assigned, anticipated, sold, encumbered or pledged and shall not
be subject to the claims of his creditors. Nothing in the Plan shall
confer upon Executive the right to continue in the employ of the Company or
any subsidiary or shall interfere with or restrict in any way the right of
the Company and its subsidiaries to discharge Executive at any time for any
reason whatsoever, with or without cause.
8. Successors. The Plan shall be binding on the Executive and his
personal representatives. If the Company becomes a party to any merger,
consolidation, reorganization or other corporate transaction, the Plan
shall remain in full force and effect as an obligation of the Company or
its successor in interest.
9. Amendment and Termination. The Board may amend or terminate the
Plan at any time as it deems appropriate; provided that (a) no amendment or
termination of the Plan after the end of a fiscal year may increase the
Bonus Payment for the fiscal year just ended, and (b) to the extent
required to meet the requirements of Code section 162(m) for performance-
based compensation, any amendment that makes a material change to the Plan
must be approved by the stockholders of the Company. The Board is
specifically authorized to amend the Plan and take such other action as
necessary or appropriate to comply with Code section 162(m) and regulations
issued thereunder, and to comply with or avoid administration of the Plan
in a manner that could cause a Participant to incur liability under Section
16(b) of the Securities Exchange Act of 1934 and regulations issued
thereunder.
10. Construction. The Plan shall be construed in accordance with the
laws of Delaware. The headings in this Plan have been inserted for
convenience of reference only and are to be ignored in any construction of
the provisions. If a provision of this Plan is not valid, that invalidity
does not affect other provisions.
<PAGE>
SMITHFIELD FOODS, INC.
1992 STOCK INCENTIVE PLAN
(AS AMENDED AND RESTATED)
1. PURPOSE. The Smithfield Foods, Inc. 1992 Stock Incentive Plan (the
"Plan") was adopted May 20, 1992 and approved by stockholders on September 2,
1992. The Plan as amended and restated was adopted April 13, 1994 subject to
stockholder approval as to the amendments to the Plan. The Plan was adopted to
further the long term stability and financial success of Smithfield Foods, Inc.
(the "Company") by attracting and retaining key employees through the use of
stock incentives. It is believed that ownership of Common Stock will stimulate
the efforts of eligible participants upon whose judgment and interest the
Company is and will be largely dependent for the successful conduct of its
business. It is also believed that Options granted to such participants under
this Plan will strengthen their desire to remain with and provide services to
the Company and will further the identification of their interests with those of
the Company's stockholders.
The Plan is intended to conform to the provisions of Securities and
Exchange Commission Rule 16b-3 ("Rule 16b-3").
2. DEFINITIONS. As used in the Plan, the following terms have the meanings
indicated:
(a) "Board" means the board of directors of the Company.
(b) "Change of Control" means:
(i) The acquisition, other than from the Company, by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Securities Exchange
Act of 1934) of 20% or more of either the then outstanding shares of Common
Stock of the Company or the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election
of directors, but excluding for this purpose, any such acquisition by the
Company or any of its subsidiaries, or any employee benefit plan (or
related trust) of the Company or its subsidiaries, or any corporation with
respect to which, following such acquisition, more than 50% of,
respectively, the then outstanding shares of Common Stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or indirectly, by the
individuals and entities who were the beneficial owners, respectively, of
the Common Stock and voting securities of the Company immediately prior to
such acquisition in substantially the same proportion as their ownership,
immediately prior to such acquisition, of the then outstanding shares of
Common Stock of the Company or the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the election of directors, as the case may be; or
(ii) Individuals who, as of the date hereof, constitute the Board (as
of the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any individual
becoming a director subsequent to the date hereof whose election or
nomination for election by the Company's stockholders was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the Company
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under
the Securities Exchange Act of 1934); or
1
<PAGE>
(iii) Approval by the stockholders of the Company of a reorganization,
merger or consolidation, in each case, with respect to which the
individuals and entities who were the respective beneficial owners of the
Common Stock and voting securities of the Company immediately prior to such
reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
Common Stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such reorganization, merger
or consolidation, or a complete liquidation or dissolution of the Company
or of its sale or other disposition of all or substantially all of the
assets of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Company" means Smithfield Foods, Inc., a Delaware corporation.
(e) "Common Stock" means Common Stock, $.50 par value, of the Company. If
the par value of the Common Stock is changed, or in the event of a change in the
capital structure of the Company (as provided in Section 11), the shares
resulting from such a change shall be deemed to be Common Stock within the
meaning of the Plan.
(f) "Committee" means the committee appointed by the Board as described
under Section 12.
(g) "Date of Grant" means the date on which an Option is granted by the
Committee or a later date specified by the Committee as the date the grant is to
become effective.
(h) "Disability" or "Disabled" means a mental or physical condition that
prevents a Participant from rendering the services for which he was employed.
The Committee shall determine whether a Disability exists and such determination
shall be conclusive.
(i) "Fair Market Value" means as of the Date of Grant (or, if there were no
trades on the Date of Grant, the last preceding day on which Common Stock is
traded) (i) if the Common Stock is traded on an exchange the average of the
highest and lowest registered sales prices of the Common Stock at which it is
traded on such day on the exchange on which it generally has the greatest
trading volume, or (ii) if the Common Stock is traded on the over-the-counter
market, the average between the lowest and highest sales prices as reported by
NASDAQ.
(j) "Insider" means a person subject to Section 16(b) of the Securities
Exchange Act of 1934.
(k) "Nonstatutory Stock Option" means an Option, which does not meet the
requirements of Section 422 of the Code, or even if meeting the requirements of
Section 422 of the Code, is not intended to be an incentive stock option and is
so designated.
(l) "Option" means a right to purchase Common Stock granted under the Plan,
at a price determined in accordance with the Plan.
(m) "Parent" means, with respect to any corporation, a "parent corporation"
of that corporation within the meaning of Section 424(e) of the Code.
(n) "Participant" means any person who receives an Option under the Plan.
(o) "Rule 16b-3" means Rule 16b-3 of the Securities and Exchange Commission
promulgated under the Securities Exchange Act of 1934. A reference in the Plan
to Rule 16b-3 shall include a reference to any corresponding rule (or number
redesignation) of any amendments to Rule 16b-3 enacted after the effective date
of the Plan's adoption.
2
<PAGE>
(p) "Subsidiary" means, with respect to any corporation, a "subsidiary
corporation" of that corporation within the meaning of Section 424(f) of the
Code.
3. GENERAL. Options granted under the Plan shall be Nonstatutory Stock
Options.
4. STOCK. Subject to Section 11 of the Plan, there shall be reserved for
issuance under the Plan an aggregate of 1,250,000 shares of Common Stock, which
shall be authorized, but unissued shares. Shares allocable to options awarded
under the Plan, that expire or terminate unexercised may be subjected to an
Option under the Plan.
5. ELIGIBILITY.
(a) All present and future management employees and other employees who are
in a position to contribute to the success of the Company (or any Parent or
Subsidiary of the Company, whether now existing or hereafter created or
acquired) shall be eligible to receive an Option under the Plan. The Committee
shall have the power and complete discretion, as provided in Section 12, to
select persons to receive Options and, subject to the provisions of Section 6,
to determine for each Participant the terms and conditions and the number of
shares to be allocated to each Participant as part of each Option.
(b) The grant of an Option shall not obligate the Company or any Parent or
Subsidiary of the Company to pay a Participant any particular amount of
remuneration, to continue the employment of the Participant after the grant or
to make further grants to the Participant at any time thereafter.
6. STOCK OPTIONS.
(a) Whenever the Committee deems it appropriate to grant Options, notice
shall be given to a Participant stating the number of shares for which Options
are granted and the conditions to which the grant and exercise of the Options
are subject. This notice, when duly accepted in writing by the Participant,
shall become a stock option agreement between the Company and the Participant.
(b) The exercise price of shares of Common Stock covered by an Option shall
be not less than 100% of the Fair Market Value of such shares on the Date of
Grant.
(c) Options not otherwise exercisable because the five-year period from the
date of grant has not expired will become automatically exercisable (i) if a
Change of Control occurs, or (ii) on the day immediately preceding the
Distribution Date under the amended Rights Agreement between the Company and
First Union National Bank of North Carolina, Rights Agent, dated as of January
31, 1994, as amended from time to time.
(d) Options may be exercised in whole or in part at such times as may be
specified by the Committee in the Participant's stock option agreement; provided
that the exercise provisions for Options shall in all events not be more liberal
than the following provisions:
(i) No Option shall be exercisable sooner than five years from the
Date of Grant.
(ii) No Option may be exercised after the first to occur of (x) ten
years from the Date of Grant, (y) three months following the date of the
Participant's retirement or termination of employment with the Company and
its Parent and Subsidiary corporations for reasons other than Disability or
death, or (z) one year following the date of the Participant's termination
of employment on account of Disability or death.
(iii) Except as otherwise provided in this paragraph, no Option may be
exercised unless the Participant is employed by the Company or a Parent or
Subsidiary of the Company at the time of the exercise (or was so
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employed not more than three months before the time of the exercise) and
has been employed by the Company or a Parent or Subsidiary of the Company
at all times since the Date of Grant. If a Participant's employment is
terminated other than by reason of his Disability or death at a time when
the Participant holds an Option that is exercisable (in whole or in part),
the Participant may exercise any or all of the exercisable portion of the
Option (to the extent exercisable on the date of termination) within three
months after the Participant's termination of employment. If a
Participant's employment is terminated by reason of his Disability at a
time when the Participant holds an Option that is exercisable (in whole or
in part), the Participant may exercise any or all of the exercisable
portion of the Option (to the extent exercisable on the date of Disability)
within one year after the Participant's termination of employment. If a
Participant's employment is terminated by reason of his death at a time
when the Participant holds an Option that is exercisable (in whole or in
part), the Option may be exercised (to the extent exercisable on the date
of death) within one year after the Participant's death by the person to
whom the Participant's rights under the Option shall have passed by will or
by the laws of descent and distribution.
(e) The maximum number of shares with respect to which Nonstatutory Options
may be granted in any calendar year to an employee eligible to participate in
the Plan is 100,000.
7. METHOD OF EXERCISE OF OPTIONS.
(a) Options may be exercised by written notice of the exercise given by the
Participant to the Company, stating the number of shares the Participant has
elected to purchase under the Option. Such notice shall be effective only if
accompanied by the exercise price in full in cash; provided that if the terms of
the Option so permit, the Participant may (i) deliver shares of Common Stock
that the Participant has owned for at least six months (valued at their Fair
Market Value at the date of exercise), or cause to be withheld from the Option
Shares, shares of Common Stock (valued at their Fair Market Value on the date of
exercise), in satisfaction of all or any part of the exercise price, or (ii)
deliver a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of the
sale or loan proceeds to pay the exercise price.
(b) The Company may place on any certificate representing Common Stock
issued upon the exercise of an Option any legend deemed desirable by the
Company's counsel to comply with federal or state securities laws, and the
Company may require a customary written indication of the Participant's
investment intent. Until the Participant has made any required payment,
including any applicable withholding taxes, and has had issued a certificate for
the shares of Common Stock acquired, the Participant shall possess no
stockholder rights with respect to the shares.
(c) As an alternative to making a cash payment to the Company to satisfy
his tax withholding obligations, if the Option so provides or is amended to so
provide, the Committee may establish procedures permitting the Participant to
elect to (i) deliver shares of already owned Company Stock or (ii) have the
Company retain that number of shares of Company Stock that would satisfy all or
a specified portion of the Federal, state and local tax liabilities of the
employee arising in the year of its exercise upon the exercise of a Nonstatutory
Stock Option. Any such election shall be made only in accordance with procedures
established by the Committee.
(d) Notwithstanding anything herein to the contrary, Options shall always
be granted and exercised in such a manner as to conform to the provisions of
Rule 16b-3, or any replacement rule adopted, as the same now exists or may, from
time to time, be amended.
8. NONTRANSFERABILITY OF OPTIONS. Options, by their terms, shall not be
transferable except by will or by the laws of descent and distribution or, if
permitted by Rule 16b-3, pursuant to a Qualified Domestic Relations Order (as
defined in Section 414(p) of the Code ("QDRO") and shall be exercisable, during
the Participant's lifetime,
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only by the Participant or, if permitted by Rule 16b-3, an alternative payee
under a QDRO or by his guardian, duly authorized attorney-in-fact or other legal
representative.
9. EFFECTIVE DATE OF THE PLAN. The Plan shall be effective on May 20, 1992
and shall be submitted to the stockholders of the Company for approval. Until
the Plan has been approved by the Company's stockholders, no Option shall be
exercisable.
10. TERMINATION, MODIFICATION, CHANGE. If not sooner terminated by the
Board, this Plan shall terminate at the close of business on May 19, 2002. No
Options shall be made under the Plan after its termination. The Board may
terminate the Plan or may amend the Plan in such respects as it shall deem
advisable; provided, that, if and to the extent required by Rule 16b-3, no
change shall be made that increases the total number of shares of Common Stock
reserved for issuance pursuant to Options granted under the Plan (except
pursuant to Section 11), materially modifies the requirements as to eligibility
for participation in the Plan, or materially increases the benefits accruing to
Participants under the Plan, unless such change is authorized by the
stockholders of the Company. Notwithstanding the foregoing, the Board may amend
the Plan and unilaterally amend Options as it deems appropriate to ensure
compliance with Rule 16b-3. Except as provided in the preceding sentence, a
termination or amendment of the Plan shall not, without the consent of the
Participant, detrimentally affect a Participant's rights under an Option
previously granted to him.
11. CHANGE IN CAPITAL STRUCTURE.
(a) In the event of a stock dividend, stock split or combination of shares,
recapitalization or merger in which the Company is the surviving corporation or
other change in the Company's capital stock (including, but not limited to, the
creation or issuance to stockholders generally of rights, options or warrants
for the purchase of Common Stock or preferred stock of the Company), the number
and kind of shares of stock or securities of the Company to be subject to the
Plan and to Options then outstanding or to be granted thereunder, the maximum
number of shares or securities which may be delivered under the Plan, the
exercise price and other relevant provisions shall be appropriately adjusted by
the Committee, whose determination shall be binding on all persons. If the
adjustment would produce fractional shares with respect to any unexercised
Option, the Committee may adjust appropriately the number of shares covered by
the Option so as to eliminate the fractional shares.
(b) If the Company is a party to a consolidation or a merger in which the
Company is not the surviving corporation, a transaction that results in the
acquisition of substantially all of the Company's outstanding stock by a single
person or entity, or a sale or transfer of substantially all of the Company's
assets, the Committee may take such actions with respect to outstanding Options
as the Committee deems appropriate.
(c) Notwithstanding anything in the Plan to the contrary, the Committee may
take the foregoing actions without the consent of any Participant, and the
Committee's determination shall be conclusive and binding on all persons for all
purposes.
12. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a
Committee consisting of not less than two Directors of the Company, who are
"outside directors", as that term is defined for purposes of Code section
162(m), who meet the requirements of paragraph (d) below and are appointed by
the Board. Subject to the foregoing requirements, the Committee shall be the
Compensation Committee unless the Board shall appoint another Committee to
administer the Plan. The Committee shall have general authority to impose any
limitation or condition upon an Option the Committee deems appropriate to
achieve the objectives of the Option and the Plan and, in addition, and without
limitation and in addition to powers set forth elsewhere in the Plan, shall have
the following specific authority:
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(a) The Committee shall have the power and complete discretion to
determine (i) which Participants shall receive an Option, (ii) the number
of shares of Common Stock to be covered by each Option, (iii) the fair
market value of Common Stock, (iv) the time or times when an Option shall
be granted, (v) whether an Option shall become vested over a period of time
and, subject to the terms of the Plan, when it shall be fully vested, (vi)
whether a Disability exists, (vii) the manner in which payment will be made
upon the exercise of Options, (viii) conditions relating to the length of
time before disposition of Common Stock received upon the exercise of
Options is permitted, and (ix) any additional requirements relating to
Options that the Committee deems appropriate. The Committee shall also have
the power to amend the terms of previously granted Options so long as the
terms as amended are consistent with the terms of the Plan and provided
that the consent of the Participant is obtained with respect to any
amendment that would be detrimental to him, except that such consent will
not be required if such amendment is for the purpose of complying with Rule
16b-3.
(b) The Committee may adopt rules and regulations for carrying out the
Plan. The interpretation and construction of any provision of the Plan by
the Committee shall be final and conclusive. The Committee may consult with
counsel, who may be counsel to the Company, and shall not incur any
liability for any action taken in good faith in reliance upon the advice of
counsel.
(c) A majority of the members of the Committee shall constitute a
quorum, and all actions of the Committee shall be taken by a majority of
the members present. Any action may be taken by a written instrument signed
by all of the members, and any action so taken shall be fully effective as
if it had been taken at a meeting.
(d) The Board from time to time may appoint members previously
appointed and may fill vacancies, however caused, on the Committee. Insofar
as it is necessary to satisfy the requirements of Section 16(b) of the
Exchange Act, no member of the Committee shall be eligible to participate
in the Plan or in any other plan of the Company or any Parent or Subsidiary
of the Company that entitles Participants to acquire stock, stock options
or stock appreciation rights of the Company or any Parent or Subsidiary of
the Company, and no person shall become a member of the Committee if,
within the preceding one-year period, the person shall have been eligible
to participate in such a plan (other than a "safe harbor plan" permitted
under Rule 16b-3(C)(2)(i) and (ii)).
13. NOTICE. All notices and other communications required or permitted to
be given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid, as
follows (a) if to the Company -- at its principal business address to the
attention of the Treasurer; (b) if to any Participant -- at the last address of
the Participant known to the sender at the time the notice or other
communication is sent.
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