SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SMITHFIELD FOODS, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
SMITHFIELD FOODS, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 28, 1997
As a stockholder of SMITHFIELD FOODS, INC., a Delaware corporation (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 Waterside Hotel, 777 Waterside Drive, Norfolk, Virginia at 2:00 p.m., local
time, on August 28, 1997, for the following purposes:
1. To elect a Board of fourteen (14) directors of the Company to serve
until the next Annual Meeting or until their successors are duly elected
and qualified;
2. To approve the 1998 Incentive Bonus Plan applicable to the
Company's Chief Operating Officer;
3. To approve an amendment to the Company's Certificate of
Incorporation to increase the number of shares of common stock which the
Company is authorized to issue to 100 million;
4. To approve an Agreement and Plan of Reincorporation and Merger
dated as of July 28, 1997 pursuant to which the Company's state of
incorporation would change from Delaware to Virginia, by means of the
Company's merging with and into a new Virginia corporation, also to be
named Smithfield Foods, Inc., so that the stockholders of the Company would
become shareholders of Smithfield Foods, Inc., a Virginia corporation.
5. To ratify the selection of Arthur Andersen LLP as independent
public accountants of the Company for the fiscal year ending May 3, 1998;
and
6. To transact such other business as may properly come before the
meeting or any continuation or adjournment thereof.
Only stockholders of record at the close of business on July 11, 1997 will
be entitled to receive notice of and to vote at the Annual Meeting and any
adjournment thereof. The transfer books will not be closed.
We hope you can attend the Annual Meeting in person. However, even if you
plan to attend, we ask 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. If you receive more than one proxy because you own
shares registered in different names or addresses, each proxy should be
completed and returned. Your 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
Norfolk, Virginia
July 28, 1997
<PAGE>
SMITHFIELD FOODS, INC.
EXECUTIVE OFFICES
999 WATERSIDE DRIVE, SUITE 900
NORFOLK, VIRGINIA 23510
------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 28, 1997
The Annual Meeting of Stockholders of SMITHFIELD FOODS, INC., a Delaware
corporation (the "Company"), will be held on August 28, 1997, at the time and
place and for the purposes set forth in the Notice of Annual Meeting of
Stockholders accompanying this Proxy Statement. This Proxy Statement is
furnished in connection with the solicitation of proxies on behalf the Board of
Directors of the Company in connection with such meeting and any continuation or
adjournment thereof.
The costs of soliciting proxies will be borne by the Company. In addition
to solicitation by mail, certain directors, officers and employees of the
Company may solicit proxies in person or by telephone at no additional
compensation. The Company will also request record holders of Common Stock who
are brokerage firms, custodians and fiduciaries to forward proxy material to the
beneficial owners of such shares and upon request will reimburse such record
holders for the costs of forwarding the material in accordance with customary
charges. The Company has retained Corporate Communications, Inc. to assist in
the solicitation of proxies at an anticipated cost to the Company of $5,000 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 Annual 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. IF NO DIRECTIONS TO THE CONTRARY
ARE INDICATED, THE PERSONS NAMED IN THE PROXY WILL VOTE THE SHARES REPRESENTED
THEREBY FOR THE ELECTION OF EACH OF THE NAMED NOMINEES FOR DIRECTOR AND FOR EACH
OF THE OTHER PROPOSALS LISTED ON THE PROXY CARD. If necessary, and unless the
shares represented by the proxy are voted against the proposals herein, the
persons named in the proxy may also vote in favor of a proposal to recess the
Annual Meeting and to reconvene it on a subsequent date or dates without further
notice, in order to solicit and obtain sufficient votes to approve the matters
being considered at the Annual Meeting.
This Proxy Statement and the enclosed form of proxy are first being sent to
the stockholders on or about July 28, 1997.
1
<PAGE>
VOTING SECURITIES
Only holders of record of the Company's Common Stock, par value $0.50 per
share ("Common Stock"), at the close of business on July 11, 1997 (the "Record
Date") have the right to receive notice of and to vote at the Annual Meeting. As
of the Record Date, 18,763,681 shares of Common Stock were issued and
outstanding. Each holder of record of Common Stock is entitled to one vote for
each share held with respect to all matters to be voted upon at the Annual
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 Annual Meeting will
constitute a quorum. With respect to the election of directors, the 14 nominees
receiving the greatest number of votes cast for the election of directors will
be elected. The affirmative vote by the holders of a majority of the outstanding
shares of Common Stock will be required to act on Proposals 3 and 4. The
affirmative vote by the holders of a majority of the shares present in person or
represented by proxy at the Annual Meeting and entitled to vote on the subject
matter will be required to act on all other matters to come before the meeting,
including Proposals 2 and 6. Shares for which the holder has elected to abstain
or has withheld authority to vote (including broker 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.
PRINCIPAL STOCKHOLDERS
The only persons known by the Company to beneficially own more than five
percent of the Company's Common Stock as of July 11, 1997, are as follows:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
(NUMBER OF SHARES)(1)
NAME AND ADDRESS OF ------------------------------------- PERCENT
BENEFICIAL OWNER DIRECT OTHER TOTAL OF CLASS
- --------------------------- --------- --------- --------- --------
<S> <C>
Joseph W. Luter, III 1,367,809 825,032(2) 2,192,841(2) 11.4%
Smithfield Foods, Inc
999 Waterside Drive,
Suite 900
Norfolk, VA 23510
Carroll's Foods, Inc. 1,478,000 -- 1,478,000(3) 7.9%
P. O. Drawer 356
Warsaw, NC 28398
The Capital Group -- 1,764,400(4) 1,764,400(4) 9.4%
Companies, Inc.
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
2
<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 as outstanding
shares and over which such person, except as noted below, has sole voting power
and sole dispositive 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) The number of shares in the table is based upon an amended Schedule
13D, dated January 10, 1996, filed by Carroll's Foods, Inc. The reported shares
are owned of record by Carroll's Swine Investment Partnership, which is a
Virginia general 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 reported shares.
(4) The number of shares in the table is based upon a Schedule 13G, dated
February 12, 1997, filed by The Capital Group Companies, Inc. ("TCGCI"). TCGCI
is the parent holding company of a group of investment management companies that
hold investment power and, in some cases, voting power over the securities
reported in the Schedule 13G. The investment management companies, which include
a bank and several investment advisers, provide investment advisory and
management services for their respective clients which include registered
investment companies and institutional accounts. TCGCI does not have investment
power or voting power over any of the reported shares; however, TCGCI may be
deemed to beneficially own such securities. Capital Guardian Trust Company, a
bank which is a wholly-owned subsidiary of TCGCI, is the beneficial owner of
1,146,100 of the reported shares as the result of its serving as the investment
manager of various institutional accounts. The remaining shares reported as
being beneficially owned by TCGCI are beneficially owned by other subsidiaries
of TCGCI, none of which by itself owns 5% or more of the Company's outstanding
shares.
3
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The persons named below have been nominated for election to the Board of
Directors at the Annual Meeting. All of the nominees 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:
<TABLE>
<CAPTION>
NAME -- AGE -- PRINCIPAL OCCUPATION -- OTHER INFORMATION DIRECTOR SINCE
- --------------------------------------------------------------------------------------------------- --------------
<S> <C>
Joseph W. Luter, III (58) 1975
Chairman of the Board and Chief Executive Officer of the Company since May 1995; Chairman of the
Board, President and Chief Executive Officer of the Company prior to May 1995
Robert L. Burrus, Jr. (62) 1996
Partner in law firm of McGuire, Woods, Battle & Boothe, L.L.P., Richmond, Virginia; Director, CSX
Corporation, Heilig-Meyers Company, Concepts Direct, Inc., S&K Famous Brands Inc. and O'Sullivan
Corp.
F. J. Faison, Jr. (63) 1991
President of Carroll's Foods, Inc., Warsaw, North Carolina, a hog and turkey producer
Joel W. Greenberg (59) 1987
Commodity Analyst, Alaron Trading Corp., Chicago, Illinois, commodities brokerage firm; Director,
Incomnet, Inc.
Cecil W. Gwaltney (86) 1971
Chairman of the Board, Gwaltney Motor Company, Smithfield, Virginia
George E. Hamilton, Jr. (81) 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 (71) 1978
Chairman of the Board of The Farmers Bank, Windsor, Virginia
Roger R. Kapella (55) 1992
President and Chief Operating Officer of Patrick Cudahy Incorporated ("Patrick Cudahy"), a
wholly-owned subsidiary of the Company
Lewis R. Little (53) 1993
President and Chief Operating Officer of the Company and Smithfield Packing since November 1996;
President and Chief Operating Officer of Gwaltney of Smithfield, Ltd. ("Gwaltney"), a
wholly-owned subsidiary of the Company, from May 1993 to November 1996; Executive Vice President
of Gwaltney prior to May 1993
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME -- AGE -- PRINCIPAL OCCUPATION -- OTHER INFORMATION DIRECTOR SINCE
- --------------------------------------------------------------------------------------------------- --------------
<S> <C>
H. Gordon Maxwell, III (58) 1996
President and Chief Executive Officer of Goldsboro Milling Co., Inc., Goldsboro, North Carolina,
a hog and turkey producer
Wendell H. Murphy (58) 1991
Chairman of the Board and Chief Executive Officer of Murphy Family Farms, Inc., Rose Hill, North
Carolina, a hog producer
William H. Prestage (62) 1994
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
Joseph B. Sebring (50) 1996
President and Chief Operating Officer of John Morrell & Co. ("John Morrell"), a wholly-owned
subsidiary of the Company, since May 1994; President and Chief Executive Officer of Indiana
Packers Company prior to May 1994
Aaron D. Trub (62) 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.
NOMINATING PROCEDURE
In accordance with the Company's Bylaws, a stockholder entitled to vote in
the election of directors may nominate one or more persons for election as a
director at the Annual Meeting only if written notice of such stockholder's
intent to make such nomination has been given, either by personal delivery to
the Secretary of the Company not later than the close of business on August 7,
1997, or by United States mail, postage prepaid, to the Secretary postmarked not
later than August 7, 1997. Any such notice must set forth (i) the name and
address of the stockholder who intends to make the nomination, (ii) the name,
address and principal occupation of each proposed nominee, (iii) a
representation that the stockholder is entitled to vote at the Annual Meeting
and intends to appear in person or by proxy at such meeting to nominate the
person or persons specified in the notice, and (iv) the consent of each proposed
nominee to serve as a director of the Company if so elected. The Chairman of the
meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors, executive officers and persons who own more
than 10% of the Company's Common Stock to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
the Company's Common Stock and to provide copies of such reports to the Company.
Based solely on a review of the copies of such reports furnished to the Company
and written representations that no other reports were required to be filed
during the fiscal year ended April 27, 1997, 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.
5
<PAGE>
COMMON STOCK OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS
The following information with respect to beneficial ownership, as of July
11, 1997, of shares of Common Stock is furnished with respect to (i) each
director and nominee for director of the Company, (ii) each executive officer
named in the Summary Compensation Table appearing on page 10 of this Proxy
Statement, and (iii) all current directors and executive officers as a group,
together with their respective percentages:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
(NUMBER OF SHARES)(1)
------------------------------------- PERCENT
NAME DIRECT OTHER TOTAL OF CLASS
- ------------------------------ --------- --------- --------- --------
<S> <C>
Robert L. Burrus, Jr. 500 -- 500 *
F. J. Faison, Jr. -- 1,478,000(2) 1,478,000(2) 7.9%
Joel W. Greenberg 2,000 1,000(3) 3,000(3) *
Cecil W. Gwaltney 10,000 -- 10,000 *
George E. Hamilton, Jr. 60,000 26,000(4) 86,000(4) *
Richard J. Holland 20,000 -- 20,000 *
Roger R. Kapella 12,000 20,000(5) 32,000(5) *
Lewis R. Little 3,000 -- 3,000 *
Joseph W. Luter, III 1,367,809 825,032(6) 2,192,841(6) 11.4%
H. Gordon Maxwell, III -- -- -- *
Wendell H. Murphy -- 483,500(7) 483,500(7) 2.6%
William H. Prestage -- 60,000(8) 60,000(8) *
Joseph B. Sebring -- -- -- *
Timothy A. Seely 700 -- 700 *
Aaron D. Trub 42,682 99,000(9) 141,682(9) *
All current directors and
executive officers
as a group
(18 persons) 1,545,191 3,012,532(10) 4,557,723(10) 23.6%
</TABLE>
- ---------------
* Less than 1% of class
(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 voting power or dispositive power with
respect to 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 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 1,478,000 shares owned of record by Carroll's Swine Investment
Partnership, a Virginia general 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.
6
<PAGE>
(4) Includes 26,000 shares owned by Mr. Hamilton's son, with respect to
which Mr. Hamilton disclaims beneficial ownership.
(5) Includes 20,000 shares subject to presently exercisable stock options.
(6) Reflects 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.
(7) Reflects 483,500 shares owned by Murphy Family Farms, Inc., of which
Mr. Murphy is an officer, director and the principal stockholder. Murphy Family
Farms, Inc. has sole voting power and sole dispositive power with respect to
such shares.
(8) 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.
(9) Includes 50,000 shares subject to presently exercisable stock options.
Also includes 41,000 shares owned by Mr. Trub's spouse and 8,000 shares owned by
Mr. Trub's daughter, with respect to all of which Mr. Trub disclaims beneficial
ownership.
(10) Includes 590,000 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.
The Executive Committee is composed of Messrs. Holland, Little and Luter
and, with certain limitations, exercises the power of the Board of Directors
between board meetings. The Executive Committee held one meeting in fiscal 1997.
The Audit Committee is composed 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 1997.
The Compensation Committee is composed of Messrs. Burrus, 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 take, or recommend to the Board of Directors of
the Company, such actions as its review indicates. The committee held seven
meetings in fiscal 1997.
The Board of Directors held seven meetings during fiscal 1997, including
four regular meetings. 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.
7
<PAGE>
Directors who are not employees of the Company or any of its subsidiaries
received in fiscal 1997 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.
Pursuant to an agreement which expired in June 1996, the Company
compensated George E. Hamilton, Jr., a director of the Company and the retired
President and Chief Operating Officer of Smithfield Packing, for consulting
services provided to the Company at a rate of approximately $4,800 per week. The
Company paid Mr. Hamilton $28,846 for consulting services provided under such
agreement during fiscal 1997.
EXECUTIVE COMPENSATION
The table below sets forth, for the fiscal years ended April 27, 1997,
April 28, 1996 and April 30, 1995, the annual and long-term compensation for
services in all capacities to the Company and its subsidiaries of those persons
who, at April 27, 1997, were the Company's Chief Executive Officer and the next
four highest compensated executive officers (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ----------------
(1) SECURITIES
FISCAL --------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS (#) COMPENSATION ($)
- ------------------------------------ ---- ------- --------- ---------------- ----------------
<S> <C>
Joseph W. Luter, III 1997 420,000 1,400,078 -- 2,019(2)
Chairman of the Board 1996 420,000 402,786 -- --
and Chief Executive Officer 1995 420,000 807,298 -- --
of the Company
Lewis R. Little 1997 355,385 724,635 35,000 --
President and Chief 1996 270,000 190,555 -- --
Operating Officer of the 1995 270,000 234,424 -- --
Company and Smithfield Packing
Joseph B. Sebring 1997 400,000 344,103 -- --
President and Chief 1996 138,402 100,000 20,000 --
Operating Officer of 1995 -- -- -- --
John Morrell
Timothy A. Seely 1997 194,615 290,501 -- --
President and Chief 1996 120,000 95,278 -- --
Operating Officer of 1995 120,000 117,212 -- --
Gwaltney
Roger R. Kapella 1997 157,500 266,257 -- --
President and Chief 1996 157,500 217,985 -- --
Operating Officer of 1995 157,500 256,466 -- --
Patrick Cudahy
</TABLE>
- ---------------
(1) While the Named Executive Officers received perquisites or other
personal benefits in the years shown, in accordance with Securities and Exchange
Commission regulations, the value of these benefits is not indicated since they
did not exceed the lesser of $50,000 or 10% of the individual's salary and bonus
in any year.
8
<PAGE>
(2) Reflects the economic benefit to Mr. Luter of the portion of the
premiums paid by the Company under a split dollar life insurance agreement
between the Company and an irrevocable trust established by Mr. Luter. This
arrangement is designed so that if certain assumptions made as to investment
performance, continuation of the agreement and other factors are realized, the
Company will fully recover all such premiums upon the earlier of Mr. Luter's
death or the termination of the agreement. However, the arrangement includes a
compensatory element attributable to the Company's costs for advancing the
premiums. The benefit for fiscal 1997 was determined by calculating the time
value of money (using the applicable short term federal funds rate) of the
premiums paid by the Company through April 27, 1997 for the period commencing on
the date the premiums were paid until April 27, 1997. Under the terms of the
agreement, the Company may terminate the agreement and request a refund of the
premiums paid at any time upon giving written notice to the trust. The Company
has been granted a security interest in the cash surrender value and death
benefits of the life insurance policies equal to the sum of all premiums paid by
the Company.
The following table sets forth additional information concerning individual
grants of stock options made under the 1992 Plan during the last completed
fiscal year to any of the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------- ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION
OPTIONS OPTIONS GRANTED EXERCISE OR FOR OPTION TERM(1)
GRANTED(2) TO EMPLOYEES BASE PRICE EXPIRATION -----------------------
NAME (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---------------- ----------- --------------- ----------- ---------- -------- ----------
<S> <C>
Lewis R. Little 35,000 43.8% $ 32.94 12/2/06 $724,998 $1,837,286
</TABLE>
- ---------------
(1) The potential realizable values in the table assume that the market
price of the Company's Common Stock appreciates in value from the date of grant
to the end of the option term at the annualized rates of 5% and 10%,
respectively. The actual value, if any, an executive may realize will depend on
the excess, if any, of the stock price over the exercise price on the date the
option is exercised. There is no assurance that the value realized by an
executive will be at or near the value estimated in the table.
(2) The options awarded to Mr. Little were granted on December 2, 1996, and
will become exercisable on the fifth anniversary of the grant date. The options
were granted with an exercise price equal to the market price of the Company's
Common Stock on the grant date.
9
<PAGE>
The table below sets forth information with respect to option exercises
during fiscal 1997 and the number and value of options held at April 27, 1997 by
each of the Named Executive Officers.
AGGREGATED OPTION\SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END UNEXERCISED OPTION VALUES
<TABLE>
<CAPTION>
(D) (E)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
(C) UNDERLYING UNEXERCISED IN-THE-MONEY(2)
(B) VALUE(1) OPTIONS\SARS AT OPTIONS\SARS AT
(A) SHARES ACQUIRED REALIZED FY-END (#) FY-END ($)
NAME ON EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------- --------------- ---------- ------------------------- -------------------------
<S> <C>
Joseph W. Luter, III -- -- 500,000 / 100,000 $ 20,125,000 / $2,531,200
Lewis R. Little -- -- 0 / 100,000 $ 0 / $2,185,575
Joseph B. Sebring -- -- 0 / 20,000 $ 0 / 422,500
Timothy A. Seely -- -- 0 / 10,000 $ 0 / $ 283,125
Roger R. Kapella 36,000 $1,086,750 20,000 / 35,000 $ 805,000 / $ 885,920
</TABLE>
- ---------------
(1) The dollar values referred to in columns (C) and (E) are calculated by
determining the difference between the fair market value of the securities
underlying the options and the exercise price of the options at exercise or
fiscal year-end, respectively. In each case, fair market value has been based on
the last sales price of the Common Stock as reported by The Nasdaq Stock Market
on the relevant date.
(2) Options are in-the-money if the fair market value of the underlying
securities exceeds the exercise price of the option.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The Compensation Committee (the "Committee") believes strongly that
corporate performance and, in turn, stockholder value depend 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-forperformance. 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, short- and long-term incentive compensation
programs, both cash and non-cash, that are tied to the financial performance of
the Company or certain of its subsidiaries.
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 executive officers who assumed significant
new responsibilities, the base salaries of the Chief Executive Officer and the
Company's other executive officers have remained basically unchanged since
fiscal 1992.
10
<PAGE>
A cash bonus is the principal short-term incentive. Bonus awards for most
executive officers are calculated pursuant to formulas 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 Chief Operating 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 18% to 77% of an executive officer's
total cash compensation depending on Company, relevant subsidiary and individual
performance. Bonus awards for fiscal 1997 averaged approximately 65% of the
total cash compensation paid to all executive officers as compared to 43% in
fiscal 1996 and 54% in fiscal 1995.
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. During fiscal 1997, four eligible employees (including one
executive officer) were awarded stock options to acquire a total of 80,000
shares of Common Stock.
CEO COMPENSATION
The Committee determined the compensation of Joseph W. Luter, III, the
Chairman of the Board and Chief Executive Officer of the Company, for fiscal
1997 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
basically unchanged since fiscal 1992.
Mr. Luter's bonus award for fiscal 1997 was determined pursuant to the 1994
Incentive Bonus Plan approved by stockholders, under which he was entitled to 1%
of the first $15 million of the Company's fiscal 1997 net income before income
taxes, incentive payments due to executives and accounting for minority
interests, and 2% of such net income in excess of $15 million. Mr. Luter's bonus
represented approximately 77% of his total cash compensation. No stock options
were awarded to Mr. Luter during fiscal 1997.
ADMINISTRATION OF COMPENSATION PROGRAMS
Messrs. Burrus, Greenberg and Holland, none 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 takes, or recommends to the
Board of Directors, such actions as its review indicates. The Board of Directors
has never modified or rejected in any material way any recommendation of the
Committee.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), which was enacted in 1993, imposes a $1 million limit on the amount of
annual compensation that can be deducted 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. 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.
Robert L. Burrus, Jr. Joel W. Greenberg Richard J. Holland
11
<PAGE>
PERFORMANCE GRAPH
The graph below presents a comparison of the Company's five-year cumulative
total return on its Common Stock 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 3, 1992 and
that dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
OF COMPANY, PUBLISHED INDUSTRY INDEX AND BROAD MARKET INDEX
[GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C>
SMITHFIELD FOODS, INC. 100 89.15 148.84 141.09 182.95 300.00
MEAT PACKING INDEX 100 102.72 118.67 147.31 173.84 231.17
NASDAQ MARKET VALUE INDEX 100 119.48 134.11 146.43 204.40 217.88
</TABLE>
12
<PAGE>
PENSION PLAN
The Company, Gwaltney, Patrick Cudahy, Smithfield Packing and Brown's of
Carolina, Inc. maintain a qualified non-contributory pension plan covering their
salaried and non-union-eligible hourly employees (the "Company Plan"). A similar
plan covers salaried and non-union-eligible hourly employees of John Morrell
(the "John Morrell Plan").
The Company Plan provides for retirement benefits which are a function of
each participant's average earnings during his highest five calendar years of
employment and his aggregate years of service with certain companies in the
Company's controlled group. Subject to the qualified plan limits in the Code,
all compensation paid to a participant within a calendar 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 qualified pension plan with those provided by Social
Security.
The John Morrell Plan provides for retirement benefits which are a function
of each participant's average earnings during his highest five calendar years of
employment and his years of service with John Morrell. Subject to the qualified
plan limits in the Code, all compensation paid to a participant within a
calendar 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 multiplied by the years of service and subtracting 50%
of the estimated Social Security Benefits. This method of calculation has the
effect of coordinating the benefits provided by the qualified pension plan with
those provided by Social Security.
The following tables indicate the estimated annual benefits payable upon
retirement at age 65 in 1997 to participants in the Company Plan and the John
Morrell Plan, based on the specific remuneration and years of service
classifications set forth below.
COMPANY PLAN
<TABLE>
<CAPTION>
AVERAGE EARNINGS
DURING PARTICIPANT'S SELECTED YEARS OF SERVICE
HIGHEST FIVE --------------------------------------------------------
CALENDAR YEARS (1)-(4) 15 20 25 30 35
- ---------------------- ------- ------- ------- ------- --------
<S> <C>
$120,000 $26,644 $35,525 $44,407 $53,288 $ 62,169
160,000 34,804 46,405 58,007 69,608 81,209
200,000 36,247 48,449 60,651 72,854 85,056
240,000 42,732 57,637 72,541 87,446 102,351
280,000 48,417 65,690 82,963 100,237 117,510
320,000 48,541 65,866 83,191 100,516 117,841
360,000 48,541 65,866 83,191 100,516 117,841
</TABLE>
13
<PAGE>
JOHN MORRELL PLAN
<TABLE>
<CAPTION>
AVERAGE EARNINGS
DURING PARTICIPANT'S SELECTED YEARS OF SERVICE
HIGHEST FIVE --------------------------------------------------------
CALENDAR YEARS (1)-(3) 15 20 25 30 35
- ---------------------- ------- ------- ------- ------- --------
<S> <C>
$120,000 $27,626 $36,835 $46,044 $46,044 $ 46,044
160,000 38,426 51,235 64,044 64,044 64,044
200,000 38,426 51,235 64,044 64,044 64,044
240,000 38,426 51,235 64,044 64,044 64,044
280,000 38,426 51,235 64,044 64,044 64,044
320,000 38,426 51,235 64,044 64,044 64,044
360,000 38,426 51,235 64,044 64,044 64,044
</TABLE>
- ---------------
(1) The maximum annual retirement benefit is $125,000 for benefits
commencing in 1997 at age 65. The maximum amount is subject to annual
cost-of-living adjustments.
(2) The remuneration covered by the plan is the remuneration paid during
the calendar year, whereas the remuneration reported in the summary compensation
table is the remuneration paid for the fiscal year ended April 27, 1997.
(3) In accordance with federal pension law, annual compensation in excess
of $150,000 (for 1994, 1995 and 1996) and $160,000 (for 1997) cannot be
considered when calculating a qualified pension benefit. However, benefits
accrued through December 31, 1993, may have been based on higher compensation.
(4) A new benefit formula became effective January 1, 1995. However,
benefits accrued through December 31, 1994 under the old benefit formula are not
reduced.
As of April 27, 1997, Messrs. Luter, Little, Seely and Kapella are credited
with 30, 34, 4 and 12 years of service, respectively, under the Company Plan and
Mr. Sebring is credited with 3 years of service under the John Morrell Plan. The
benefits shown in the tables are not subject to any reduction for benefits paid
from other sources, including Social Security.
OTHER TRANSACTIONS
Joseph W. Luter, III, the Chairman of the Board 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 $266,000 of its fresh pork and processed meat
products to Luter Packing Company in fiscal 1997. 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. In addition,
Gwaltney purchased $12,722,000 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.
Mr. Luter's daughter and son-in-law are the sole members of Fishing Creek
Farms LLC ("Fishing Creek"). Brown's of Carolina, Inc. ("Brown's"), an 86%-owned
subsidiary of the Company, has arrangements with B&G Farms LLC ("B&G"), a
limited liability company in which Brown's and Fishing Creek each have a 50%
interest,
14
<PAGE>
for the production of hogs for the Company's pork processing plants. The
arrangements involve, inter alia, (i) the lease of certain hog production
facilities by B&G to Brown's until December 31, 2009 at an annual rent of
approximately $465,000 per year, and (ii) advances by B&G to Brown's of cash for
working capital. Working capital advances totaling $1,430,000 were outstanding
as of April 27, 1997. All profits and losses from the hog production operations
are shared equally by Brown's and Fishing Creek. All advances made pursuant to
the arrangements accrue interest at a rate equal to the prime rate charged by
one of the Company's lending banks. The Company purchased $6,439,000 of live
hogs from B&G in fiscal 1997 and anticipates about the same volume of business
in fiscal 1998. The Company believes that the terms of the foregoing
arrangements are no less favorable to the Company than if entered into with
unaffiliated parties.
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 obligate 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. Such revenues were $8,227,000
in fiscal 1997 and are expected to be the same amount or slightly less in fiscal
1998. Pursuant to the purchase agreements, the Company purchased $93,049,000 and
$269,499,000 of live hogs from CFOV and CFI, respectively, in fiscal 1997 and
anticipates a greater volume of business under these agreements in fiscal 1998.
The Company believes that the prices paid under the purchase agreement with CFI
are equivalent to market.
The purchase agreement with CFOV results in decreased raw material costs to
the Company during periods when hog production is profitable and, conversely, an
increase in such costs when such production is unprofitable. The agreement with
CFOV resulted in decreased raw material costs to the Company (as compared to
market costs) of $5,245,000 in fiscal 1997 compared to decreased raw material
costs of $2,617,000 in fiscal 1996.
Wendell H. Murphy, a director of the Company, is the chairman of the board
and chief executive officer and the principal stockholder of Murphy Family
Farms, Inc. ("MFF"), a hog producer located in Rose Hill, North Carolina. The
Company has a contract with MFF which obligates the Company to purchase hogs
finished by MFF in the Southeast. Pursuant to the purchase agreement, the
Company purchased $433,861,000 of live hogs from MFF in fiscal 1997 and
anticipates a greater volume of business under this agreement in fiscal 1998.
The Company believes that the prices paid under the purchase agreement with MFF
are equivalent to market.
William H. Prestage, a director of the Company, is the chairman of the
board, president and chief executive officer of Prestage Farms, Inc. ("PFI"), a
hog and turkey producer located in Clinton, North Carolina. The Company has a
contract with PFI which obligates the Company to purchase hogs produced by PFI
in the states of Virginia, North Carolina and South Carolina. Pursuant to the
purchase agreement, the Company purchased $182,576,000 of live hogs from PFI in
fiscal 1997 and anticipates a greater volume of business under this agreement in
fiscal 1998. The Company believes that the prices paid under the purchase
agreement with PFI are equivalent to market.
Smithfield of Utah, Inc. ("Smithfield-Utah"), 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 for sale to an unrelated party.
The other companies participating in the joint hog production arrangement are
(i) Carroll's Foods of Utah, Inc. (an affiliate of Carroll's Foods, Inc.), of
which F. J. Faison, Jr., a director of the Company, is the
15
<PAGE>
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 director of the Company, is the
president and a director and Mr. Prestage and his wife are the sole
stockholders. As of April 27, 1997, Smithfield-Utah had contributed a total of
$12,673,000 to the arrangement and had a 33% interest in its profits or losses.
The Company believes that the terms of the joint arrangement are no less
favorable to the Company than if entered into with unaffiliated parties.
Cecil W. Gwaltney, a director of the Company, is chairman of the board of
Gwaltney Motor Company ("GMC"), which was paid $677,000 by the Company in fiscal
1997 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 April 27, 1997, the Company was obligated to make a total
of $676,000 in future lease payments under such leases in effect on that date.
The Company 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.
In December 1995, the Company issued 1,094,273 shares of its Common Stock
to Chiquita in a private transaction (the "Chiquita Shares"). On that date, the
Company acquired from Chiquita all of the outstanding capital stock of its then
subsidiary, John Morrell, for a total purchase price of $58 million, consisting
of $25 million in cash and the issuance of the Chiquita Shares. Pursuant to a
registration rights agreement between Chiquita and the Company entered into as a
part of the December 1995 transaction (the "Registration Rights Agreement"), in
April 1996, Chiquita requested that the Company file a registration statement
registering the Chiquita Shares for resale. The costs of registering the
Chiquita Shares (which costs were borne by the Company) were approximately
$100,000.
H. Gordon Maxwell, III, a director of the Company, is a director and owns
50% of the voting stock of Maxwell Foods, Inc. ("MFI"), a hog producer located
in Goldsboro, North Carolina. The Company has a 16 contract with MFI which
obligates the Company to purchase hogs produced by MFI in the State of North
Carolina. Pursuant to the purchase agreement, the Company purchased $109,470,000
of live hogs from MFI in fiscal 1997 and anticipates a greater volume of
business under this agreement in fiscal 1998. The Company believes that the
prices paid under the purchase agreement with MFI are equivalent to market. In
addition, Mr. Maxwell is a stockholder of a corporation which owns a controlling
interest in Carolina Turkeys, Inc. ("CTI"). During fiscal 1997, the Company
purchased $971,000 of comminuted chicken meat from CTI. The Company believes
that the terms under which it made such purchases were as advantageous to the
Company as those it would have received from any other comminuted chicken meat
producer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert L. Burrus, Jr., a director of the Company and a member of the
Compensation Committee, is a partner in the law firm of McGuire, Woods, Battle &
Boothe, L.L.P., which has provided legal services to the Company on a regular
basis since 1985.
16
<PAGE>
PROPOSAL 2
APPROVAL OF 1998 INCENTIVE BONUS PLAN
INTRODUCTION
On June 13, 1997, a sub-committee of the Compensation Committee adopted the
1998 Incentive Bonus Plan applicable to the Company's Chief Operating Officer,
subject to approval by the Company's stockholders. The purpose of the plan is to
provide any person serving as the Chief Operating 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 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 Chief
Operating Officer'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 April 28, 1997, unless and until terminated by the
Board of Directors. Similar incentive bonus plans applicable to the Company's
Chairman and Chief Executive Officer and the Company's former President and
Chief Operating Officer were adopted by the Compensation Committee and approved
by the Company's stockholders in 1994 and 1996, respectively.
DESCRIPTION OF THE PLAN
The Incentive Bonus Plan establishes a linkage between the cash bonus
awards to the Chief Operating Officer and the Company's financial performance.
For the fiscal year ending May 3, 1998, and each fiscal year thereafter, until
the plan is terminated or the sub-committee changes the threshold and percentage
requirements for receipt of a bonus payment, the Chief Operating Officer will be
entitled to receive 1% of the Company's net income before income taxes,
incentive payments due to executives and accounting for minority interests (the
"Bonus Base"). If a person is elected or appointed to serve as Chief Operating
Officer after the beginning of a fiscal year for which an award is otherwise
payable, the amount of the award will be equal to 1% of the Bonus Base for the
period commencing on the date such person assumes office and ending on the last
day of such fiscal year, unless such person assumes office within 90 days after
the beginning of the fiscal year and no award is to be paid under the plan to
any person previously serving in such office with respect to any portion of such
fiscal year, in which case the amount of the award will equal 1% of the Bonus
Base for the entire fiscal year.
PAYMENT OF AWARDS
Before any award may be paid pursuant to the Incentive Bonus Plan, the
sub-committee must certify that the performance goals have been achieved and any
other requirements of the plan have been satisfied.
If the Chief Operating Officer's employment is terminated before the last
day of the fiscal year because of death, disability, retirement, or by the
Company without cause, the Chief Operating Officer 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 or voluntarily by the
Chief Operating Officer (other than due to disability or retirement), no award
will be paid.
ADMINISTRATION
The Incentive Bonus Plan will be administered by a sub-committee of the
Compensation Committee consisting of the members of the Compensation Committee
who are "outside directors" as that term is defined in section 162(m) of the
Code, unless otherwise determined by the Board of Directors. The sub-committee
has the
17
<PAGE>
authority to establish performance goals and targets under the plan and may
reduce the amount of, or eliminate entirely, any award if the sub-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 or other period for which an award is payable may
increase the award for the period just ended, and (ii) to the extent required to
meet the requirements under section 162(m) of the 1986 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 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 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.
RECOMMENDATION
The Board of Directors recommends a vote FOR the proposed Incentive Bonus
Plan.
PROPOSAL 3
AMENDMENT TO CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK
The Board of Directors has unanimously approved, and recommends to the
stockholders that they adopt, an amendment to the Company's Certificate of
Incorporation that would increase the authorized Common Stock from 25 million to
100 million shares. This amendment is presented for consideration by the
stockholders separately from the Reincorporation Proposal (as defined below)
presented in Proposal 4, which in and of itself does not provide for an increase
in any authorized capital stock. If both Proposals 3 and 4 receive the required
approval of stockholders, the Company will effect both Proposal 3 and Proposal
4, subject to the conditions described therein, as described further below.
Accordingly, in the discussion below concerning Proposal 3, references to the
Company, its Board of Directors and to the Company's capital stock shall be
deemed to include Smithfield Foods Virginia (as defined under Proposal 4 below),
its board of directors and its capital stock, in the event that both Proposal 3
and Proposal 4 receive the required approval of stockholders and are
implemented.
Of the 25 million currently authorized shares of Common Stock, as of July
11, 1997, 19,200,681 shares have been issued (including 437,000 treasury shares)
and 1,885,000 shares are reserved for issuance under the Company's stock option
plans. This leaves a balance of 3,914,319 authorized but unissued shares of
Common Stock
18
<PAGE>
available and unreserved for future use. The additional shares of Common Stock
for which authorization is sought would be a part of the existing class of
Common Stock and, if and when issued, would have the same rights and privileges
as the shares of Common Stock presently outstanding. No holder of Common Stock
has any preemptive rights to acquire additional shares of the Common Stock.
PURPOSE AND EFFECT OF PROPOSAL 3
The Board of Directors believes that an increase in the number of shares of
authorized Common Stock as contemplated by Proposal 3 would benefit the Company
and its stockholders by giving the Company needed flexibility in its corporate
planning and in responding to developments in the Company's business, including
possible financing and acquisition transactions, stock splits or dividends,
issuances of shares in connection with employee benefit programs and other
general corporate purposes. While the currently authorized shares are sufficient
to provide for the Company's present needs, having such authorized shares
available for issuance in the future would give the Company greater flexibility
to respond to future developments and a variety of possible transactions and
allow Common Stock to be issued without the expense and delay of a special
meeting of stockholders. The Company has no current plans to issue shares of
additional capital stock, nor are there any present plans or arrangements with
respect to the issuance of the increased authorized shares.
Unless otherwise required by applicable law or regulation, the additional
shares of Common Stock will be issuable without further authorization by vote or
consent of the stockholders and on such terms and for such consideration as may
be determined by the Board of Directors, although certain large issuances of
shares might require stockholder approval in accordance with requirements of The
Nasdaq Stock Market.
The Board of Directors could use the additional shares of Common Stock to
discourage an attempt to change control of the Company. However, the Board of
Directors has no present intention of issuing any shares of Common Stock for
such purpose, and Proposal 3 is not being recommended in response to any
specific effort of which the Company is aware to obtain control of the Company.
The Company's larger number of authorized shares of Common Stock could be used
by the Board of Directors to impede persons seeking to gain control of the
Company if the Board of Directors considered the actions of such person not to
be in the best interests of the stockholders of the Company. However, the
Company already has 3,914,319 authorized but unissued shares of Common Stock, as
well as preferred stock, that could be used for the same purpose. For example,
the issuance of additional authorized shares of capital stock in general could
be used to dilute the stock ownership of a person or entity seeking to obtain
control of the Company. The issuance of additional capital stock, whether or not
in connection with a contest for control, would in most cases dilute the voting
power of each stockholder and might dilute earnings and book value on a per
share basis. A large number of shares of capital stock also could be privately
placed with purchasers friendly to the Company in opposing a hostile takeover
bid. In any such situation, each director of the Company would be required to
discharge his duties in accordance with his good faith business judgment of the
best interests of the Company and its stockholders.
VOTE REQUIRED
Adoption of Proposal 3 requires the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock entitled to vote thereon.
RECOMMENDATION
The Board of Directors recommends a vote FOR the proposed Amendment.
19
<PAGE>
PROPOSAL 4
APPROVAL OF REINCORPORATION PROPOSAL, INCLUDING
AGREEMENT AND PLAN OF REINCORPORATION AND MERGER
DESCRIPTION OF THE PROPOSAL AND THE AGREEMENT
The Board of Directors of the Company has approved the proposed Agreement
and Plan of Reincorporation and Merger dated as of July 28, 1997 (the
"Agreement") between the Company and Smithfield Foods Virginia, Inc., a Virginia
corporation ("Smithfield Foods Virginia"), whereby a reincorporation in Virginia
would be accomplished by merging the Company into Smithfield Foods Virginia and
converting each share of Company Common Stock into one share of Smithfield Foods
Virginia's Common Stock, par value $.50 per share ("Smithfield Foods Virginia
Common Stock"), such proposal as described further below being referred to
herein as the "Reincorporation Proposal".
Smithfield Foods Virginia has recently been organized at the direction of
the Company to facilitate the Reincorporation, and following such
reincorporation the full name of the surviving corporation will become
Smithfield Foods, Inc. The mailing address of Smithfield Foods Virginia's
executive offices is the same as the Company's. As successor to the Company,
such corporation will continue to conduct business as the Company presently
conducts it, with the same directors, officers and personnel. Following the
Reincorporation, the Company's subsidiaries will continue to operate under their
present names and will conduct business in the same manner as at present, with
the same directors, officers and personnel. The full text of the Agreement is
attached hereto as Exhibit A, and stockholders of the Company are urged to read
it carefully.
NO SURRENDER OF STOCK CERTIFICATES
After the effective date of the Reincorporation (as further defined
hereinafter, the "Effective Date" or the "Effective Time"), certificates that
represent shares of Company Common Stock will automatically represent the same
number of shares of Smithfield Foods Virginia Common Stock.
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES.
All Smithfield Foods Virginia Common Stock issued as a result of the
Reincorporation will be deemed issued as of the Effective Date. After the
Effective Date, stockholders of the Company will be entitled to vote the number
of shares of Smithfield Foods Virginia Common Stock into which their shares of
Company Common Stock have been converted.
REASONS FOR THE REINCORPORATION
The principal reason for the Reincorporation is to avoid the Delaware
franchise tax. Currently, the Company's Delaware franchise tax is $107,000 per
year and would increase to $150,000 per year if the Company's authorized shares
of Common Stock were increased to 100 million shares as proposed in Proposal 3
above. By reincorporating in Virginia, the annual fee payable by Smithfield
Foods Virginia would be a maximum of $850, regardless of the number of
authorized shares, even if Proposal 3 is approved and implemented.
The Company does not expect that the Reincorporation will have any impact
on its operations or the operations of its business.
20
<PAGE>
EFFECT ON STOCK OPTIONS
At the Effective Date, the stock options of the Company, by virtue of the
Reincorporation, will become stock options of Smithfield Foods Virginia. Stock
options with respect to shares of Company Common Stock granted and outstanding
prior to consummation of the Reincorporation will automatically become options
to purchase the same number of shares of Smithfield Foods Virginia Common Stock
upon consummation of the Reincorporation, upon identical terms and conditions
and for an identical price, and Smithfield Foods Virginia will assume all of the
Company's obligations with respect to such outstanding options.
Upon consummation of the Reincorporation, all rights (other than Company
Rights (as defined below)) to purchase, sell or receive Company Common Stock and
all rights to elect to make payment in Company Common Stock under any agreement
between the Company and any director, officer or employee thereof or under any
other stock or option plan or program of the Company shall automatically, by
operation of law, be converted into and shall become an identical right to make
payment in Smithfield Foods Virginia Common Stock under any such agreement
between the Company and any director, officer or employee thereof or under such
plan or program of the Company.
It is intended that all other employee benefit plans of the Company and the
employment arrangements with executive officers will be unchanged by the
Reincorporation.
EFFECT ON COMPANY RIGHTS
At the Effective Time, each Right to Purchase Series A Junior Participating
Preferred Stock of the Company (a "Company Right") shall be cancelled, without
payment of any consideration therefor. See " -- Description of Company Capital
Stock" and " -- Description of Smithfield Foods Virginia Capital Stock" below.
MARKET FOR COMMON STOCK
The Company Common Stock is traded in the national over-the-counter market
and is authorized for quotation on The Nasdaq National Market under the symbol
"SFDS." As of July 11, 1997, there were 1,160 record holders of the Common
Stock. Because Smithfield Foods Virginia is a newly formed corporation and there
is currently no established trading market for its securities, no information
can be provided as to historical market prices for Smithfield Foods Virginia
Common Stock. Upon the Effective time, such shares would, like Company Common
Stock, be traded in the national over-the-counter market and be authorized for
quotation on the Nasdaq National Market under the symbol "SFDS".
The following table sets forth, for the fiscal periods indicated, the
highest and lowest sales prices of the Company Common Stock on The Nasdaq
National Market.
<TABLE>
<CAPTION>
RANGE OF SALES
PRICES
----------------
HIGH LOW
------ ------
<S> <C>
Fiscal year ended April 28, 1996
First quarter................................................................................ $24.25 $19.50
Second quarter............................................................................... 27.00 19.75
Third quarter................................................................................ 32.75 24.75
Fourth quarter............................................................................... 31.06 25.25
Fiscal year ended April 27, 1997
First quarter................................................................................ 30.00 22.62
Second quarter............................................................................... 32.50 23.25
Third quarter................................................................................ 38.62 28.50
Fourth quarter............................................................................... 49.50 32.37
</TABLE>
21
<PAGE>
ANTICIPATED DIVIDEND POLICY
The Reincorporation is not expected to affect dividend policy. The Company
has never paid a cash dividend on its Common Stock and does not anticipate
paying cash dividends on its Common Stock in the foreseeable future. In
addition, the terms of certain of the Company's debt agreements prohibit the
payment of cash dividends on the Common Stock. The payment of cash dividends, if
any, will be made only from assets legally available for that purpose, and will
depend on the Company's financial condition, results of operations, current and
anticipated capital requirements, restrictions under then existing debt
instruments and other factors deemed relevant by the Board of Directors. Holders
of Smithfield Foods Virginia Common Stock will be entitled to receive dividends
when, as and if declared by the Board of Directors of Smithfield Foods Virginia
out of funds legally available therefor.
RESALES OF SMITHFIELD FOODS VIRGINIA STOCK
Smithfield Foods Virginia Common Stock to be issued to stockholders of the
Company in connection with the Reincorporation will be freely transferable by
those stockholders not deemed to be "affiliates" of Smithfield Foods Virginia or
the Company. Affiliates are generally defined as persons who control, are
controlled by, or are under common control with Smithfield Foods Virginia or the
Company.
As is currently the case with respect to the Company and Company Common
Stock, shares of Smithfield Foods Virginia Common Stock acquired by a person who
is an affiliate of Smithfield Foods Virginia will be subject to the resale
restrictions of Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). Under Rule 144, each affiliate of Smithfield Foods Virginia
who complies with the conditions of Rule 144 (including those that require the
affiliate's sales to be aggregated with those of certain other persons) would be
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of (i) 1% of the outstanding
shares of Smithfield Foods Virginia Common Stock or (ii) the average weekly
trading volume in such shares during the preceding four calendar weeks. The
ability of affiliates to resell shares of Smithfield Foods Virginia Common Stock
received in the Reincorporation under Rule 144 will be subject to Smithfield
Foods Virginia having satisfied its Exchange Act reporting requirements for
specified periods prior to the time of sale. Affiliates would be permitted to
resell Smithfield Foods Virginia Common Stock received in the Reincorporation
pursuant to an effective registration statement under the Securities Act or an
available exemption from the Securities Act registration requirements.
ANTICIPATED EFFECTIVE DATE
If the holders of a majority of the outstanding shares of the Company
approve the Agreement, it will become effective upon satisfaction of certain
conditions. When the Virginia State Corporation Commission and the Secretary of
State of Delaware each has issued a Certificate of Merger, the Reincorporation
will become effective (the "Effective Date"). Subject to receipt of any
requisite administrative approvals and the satisfaction of all other conditions
of the Reincorporation, the parties believe the Reincorporation will be
effective on or before September 30, 1997.
ABANDONMENT OR AMENDMENT OF THE AGREEMENT
Consummation of the Reincorporation is subject to certain conditions as
specified in the Agreement, including obtaining the required approval of
stockholders. The Agreement may be abandoned by the affirmative vote of a
majority of the Board of Directors of either the Company or Smithfield Foods
Virginia, whether or not the stockholders of the Company or Smithfield Foods
Virginia have cast their votes with regard thereto. The Agreement may be amended
by the mutual consent of the parties with the authorization or approval of the
respective
22
<PAGE>
Boards of Directors of the Company and Smithfield Foods Virginia; however, the
consideration to be received by holders of Company Common Stock cannot be
changed after such stockholders have approved the Agreement without further
stockholder approval.
ACCOUNTING FOR THE TRANSACTION
Upon consummation of the Reincorporation, the historical financial
statements of the Company will become the historical financial statements of
Smithfield Foods Virginia. Total stockholders' equity will be unchanged as a
result of the Reincorporation.
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain federal income tax considerations
that may be relevant to holders of Company Common Stock who receive Smithfield
Foods Virginia Common Stock in exchange for their Company Common Stock as a
result of the proposed Reincorporation. No state, local, or foreign tax
consequences are addressed herein.
This discussion does not address all of the federal income tax consequences
of the Reincorporation that may be relevant to particular Company stockholders,
such as dealers in securities, or those Company stockholders who acquire their
shares upon the exercise of stock options. In view of the varying nature of such
tax considerations, each stockholder is urged to consult his or her own tax
advisor as to the specific tax consequences of the proposed reincorporation,
including the applicability of federal, state, local, or foreign tax laws.
Subject to the limitations, qualifications and exceptions described herein, and
assuming the Reincorporation qualifies as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
the following federal income tax consequences generally should result:
(a) No gain or loss should be recognized by the stockholders of the
Company upon conversion of their Company Common Stock into Smithfield
Foods Virginia Common Stock pursuant to the Reincorporation;
(b) The aggregate tax basis of Smithfield Foods Virginia Common
Stock received by each stockholder of the Company in the Reincorporation
should be equal to the aggregate tax basis of Company Common Stock
converted in exchange therefor; and
(c) The holding period of Smithfield Foods Virginia Common Stock
received by each stockholder of the Company in the Reincorporation
should include the period during which the stockholder held his Company
Common Stock converted therefor, provided such Company Common Stock was
held by the stockholder as a capital asset on the date of
Reincorporation.
(d) The Company should not recognize gain or loss for federal
income tax purposes as a result of the Reincorporation.
The Company has not requested a ruling from the Internal Revenue Service
(the "IRS") with respect to the federal income tax consequences of the
Reincorporation under the Code. The Company has, however, received an opinion
from its legal counsel, McGuire, Woods, Battle & Boothe, L.L.P., substantially
to the effect that the Reincorporation will qualify as a reorganization within
the meaning of Section 368(a) of the Code (the "Tax Opinion"). The Tax Opinion
will neither bind the IRS nor preclude it from asserting a contrary position,
and will be subject to certain assumptions and qualifications, including
representations made by the Company and Smithfield Foods Virginia. The Company
believes the Reincorporation will constitute a tax-free reorganization under
Section 368(a) of the Code.
23
<PAGE>
NO APPRAISAL RIGHTS FOR DISSENTING STOCKHOLDERS
Pursuant to applicable Delaware law, the proposed Reincorporation does not
give rise to any appraisal or dissenters' rights.
DIFFERENCES IN RIGHTS OF STOCKHOLDERS
Descriptions of the Company's capital stock and Smithfield Foods Virginia's
capital stock are contained herein under the headings " -- Description of
Company Capital Stock" and " -- Description of Smithfield Foods Virginia Capital
Stock," respectively.
As a result of the Reincorporation, holders of the Company Common Stock,
whose rights are presently governed by Delaware law and the Certificate of
Incorporation and Bylaws of the Company, would become shareholders of Smithfield
Foods Virginia, a Virginia corporation. Accordingly, their rights would be
governed by Virginia law and the Articles of Incorporation and Bylaws of
Smithfield Foods Virginia.
The following discussion is a summary of the material differences in the
rights of stockholders and is not intended as a complete description of all of
the provisions in the Articles of Incorporation and Bylaws of Smithfield Foods
Virginia that may affect the rights of stockholders. The Articles of
Incorporation of Smithfield Foods Virginia, attached hereto as Exhibit B, are
incorporated herein by reference and should be carefully reviewed. The Bylaws of
Smithfield Foods Virginia are identical in all material respects to the Bylaws
of the Company.
CAPITAL STOCK. The Articles of Incorporation of Smithfield Foods Virginia
authorize the issuance of 25 million shares of Smithfield Foods Virginia Common
Stock and 1 million shares of Smithfield Foods Virginia Preferred Stock without
further shareholder approval. Currently (and subject to Proposal 3 described
above), the Certificate of Incorporation of the Company likewise authorizes the
issuance of 25 million shares of Company Common Stock and 1 million shares of
Company Preferred Stock without further shareholder approval. If both Proposal 3
and Proposal 4 receive the necessary approval of stockholders, however, then
prior to the Effective Time the Articles of Incorporation of Smithfield Foods
Virginia will be amended to increase the number of authorized shares of
Smithfield Foods Virginia Common Stock to 100 million. As a result, upon the
Effective Time, the authorized common stock of the surviving corporation would
be 100 million shares, thereby implementing Proposal 3 as well as Proposal 4.
VOTING RIGHTS. Neither the Articles of Incorporation of Smithfield Foods
Virginia nor the Certificate of Incorporation of the Company provide that
stockholders have cumulative voting rights in the election of directors. The
absence of cumulative voting allows holders of a majority of the outstanding
shares of voting stock to elect the entire Board of Directors.
The holders of Company Common Stock have the right to vote on certain
business combinations to which the Company is a party or any proposed sale,
lease, exchange or other disposition of all or substantially all of the property
of the Company. Holders of Smithfield Foods Virginia Common Stock have the same
rights with respect to business combinations and any such asset sales to which
Smithfield Foods Virginia is a party. See " -- Mergers, Consolidations and Sales
of Assets" below.
PAYMENT OF DIVIDENDS. Please refer to " -- Anticipated Dividend Policy."
Under the Delaware General Corporation Law, a Delaware corporation may pay
dividends out of its surplus or, if there is no surplus, out of its net profits
for the fiscal year in which the dividend is declared and/or the preceding
fiscal year. If the capital of the corporation, however, has been diminished by
depreciation in the value of its property, or by losses, to an amount that is
less than the aggregate amount of the capital represented by the
24
<PAGE>
issued and outstanding stock of all classes having a preference upon the
distribution of assets, the directors of the corporation cannot declare and pay
out of the net profits any dividends on any shares of any classes of its capital
stock until the deficiency in the amount of capital represented by the issued
and outstanding stock of all classes having a preference upon the distribution
of assets has been repaired.
The ability of Smithfield Foods Virginia to pay dividends also is limited
by restrictions imposed by the Virginia Stock Corporation Act on Virginia
corporations. In general, dividends paid by a Virginia corporation may be paid
only if, after giving effect to the distribution, (i) the corporation is still
able to pay its debts as they become due in the usual course of business, or
(ii) the corporation's total assets are greater than or equal to the sum of its
total liabilities plus (unless the corporation's articles of incorporation
permit otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights,
upon the dissolution, of shareholders whose preferential rights are superior to
those receiving the distribution.
DIRECTORS. The Bylaws of the Company and Smithfield Foods Virginia each
provide that the Board of Directors shall consist of 3 to 17 members. There are
currently 14 directors of the Company, and prior to the Effective Time, each
director of the Company will become a director of Smithfield Foods Virginia.
FILLING VACANCIES ON THE BOARD. Vacancies on the Board of Directors of
Smithfield Foods Virginia, including a vacancy resulting from an increase in the
number of directors, can be filled only by the Board. A vacancy on the Board of
Directors of the Company, including a vacancy resulting from an increase in the
number of directors, can be filled only by the Board.
REMOVAL OF DIRECTORS. Directors of the Company and directors of Smithfield
Foods Virginia may be removed from office, with cause, by the affirmative vote
of holders of a majority of the shares entitled to vote at an election of
directors.
LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES. Under
the Articles of Incorporation of Smithfield Foods Virginia, the liability of
officers and directors to Smithfield Foods Virginia is eliminated to the fullest
extent permitted by Virginia law. Under Virginia law, the liability of an
officer or director cannot be limited or eliminated if the officer or director
engages in willful misconduct or a knowing violation of the criminal law or of
any federal or state securities law, including, without limitation, any claim of
unlawful insider trading or manipulation of the market for any security.
Under the Certificate of Incorporation of the Company, the liability of
directors to the Company is eliminated to the fullest extent permitted by
Delaware law. Under Delaware law, the liability of a director cannot be limited
or eliminated if the director engages in any breach of the duty of loyalty, acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, willful or negligent misconduct in the unlawful
payment of dividends or repurchase of stock, or any transaction from which the
director derives an improper personal benefit.
To the fullest extent permitted by Virginia law, Smithfield Foods
Virginia's Articles of Incorporation require it to indemnify any director or
officer who is made a party to any proceeding because he or she was or is a
director or officer of Smithfield Foods Virginia against any liability,
including reasonable expenses and legal fees, incurred in the proceeding. Under
the Smithfield Foods Virginia Articles of Incorporation, "proceeding" is broadly
defined to include pending, threatened or completed actions of all types,
including actions by or in the right of Smithfield Foods Virginia. Similarly,
"liability" is defined to include not only judgments, but also settlements,
penalties, fines and certain excise taxes. The Smithfield Foods Virginia
Articles of Incorporation also provide that it may, but is not obligated to,
indemnify its other employees or agents. Smithfield Foods Virginia
25
<PAGE>
must indemnify any person who is or was serving at the written request of
Smithfield Foods Virginia as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, to the full
extent provided by Virginia law. The indemnification provisions also require
Smithfield Foods Virginia to pay reasonable expenses incurred by a director or
officer of Smithfield Foods Virginia in a proceeding in advance of the final
disposition of any such proceeding, provided that the indemnified person
undertakes to repay Smithfield Foods Virginia if it is ultimately determined
that such person was not entitled to indemnification. Virginia law does not
permit indemnification against willful misconduct or a knowing violation of the
criminal law.
The Certificate of Incorporation of the Company also provides for
indemnification of officers and directors to the fullest extent permitted by
Delaware law. Under Delaware law, a Delaware corporation may indemnify any
officer or director for reasonable expenses incurred in any legal proceeding if
the officer or director acted in good faith and in a manner that the officer or
director reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
As is the case with the Company, the rights of indemnification provided in
Smithfield Foods Virginia's Articles of Incorporation are not exclusive of any
other rights which may be available under any insurance or other agreement, by
vote of stockholders or disinterested directors or otherwise. In addition, the
Articles of Incorporation authorize Smithfield Foods Virginia to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of Smithfield Foods Virginia, whether or not Smithfield Foods
Virginia would have the power to provide indemnification to such person, to
protect any such person against any liability arising from his or her service to
the corporation or any other legal entity at the request of the corporation.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Smithfield Foods
Virginia pursuant to the foregoing provisions, the Company and Smithfield Foods
Virginia have been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
SPECIAL MEETINGS OF STOCKHOLDERS. Under the Certificate of Incorporation
and Bylaws of the Company and the Articles of Incorporation and Bylaws of
Smithfield Foods Virginia, a special meeting of stockholders may be called by
the Board of Directors, the Executive Committee of the Board, the Chairman of
the Board or the President.
AMENDMENT OF GOVERNING INSTRUMENTS. Under Delaware law, the Certificate of
Incorporation of the Company can be amended only if the amendment is approved by
holders of a majority of the issued and outstanding shares of stock entitled to
vote. The Articles of Incorporation of Smithfield Foods Virginia also can be
amended by the vote of holders of a majority of the issued and outstanding
shares of each voting group of Smithfield Foods Virginia entitled to vote.
The Bylaws of the Company and Smithfield Foods Virginia generally may be
amended by either the Board of Directors or the stockholders by a majority vote.
APPROVAL OF THE AGREEMENT AND PLAN OF REINCORPORATION BY THE STOCKHOLDERS
OF THE COMPANY WILL BE DEEMED TO BE APPROVAL OF THE ARTICLES OF INCORPORATION
AND THE BYLAWS OF SMITHFIELD FOODS VIRGINIA BY THE SHAREHOLDERS.
MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. Under Delaware law and the
Certificate of Incorporation of the Company, a plan of merger or a direct or
indirect sale, lease, exchange or other disposition of all or substantially all
of the property of the Company must be approved by holders of a majority of the
outstanding shares of each
26
<PAGE>
class of stock entitled to vote. Under the Articles of Incorporation of
Smithfield Foods Virginia, such transactions and any share exchange in which
shares of Smithfield Foods Virginia stock are acquired by another corporation
must be approved by holders of a majority of the issued and outstanding shares
of each voting group entitled to vote. Additionally, consistent with Virginia
law, the Board of Directors of Smithfield Foods Virginia may condition its
submission of such plan of merger or share exchange or such a sale or
disposition of assets to the shareholders on any basis, including the
requirement of a greater vote than the required vote described above.
MATERIAL VIRGINIA LAWS
The Virginia statutes described below under "Affiliated Transactions" and
"Control Share Acquisitions" have the general purpose of deterring certain
corporate takeovers.
AFFILIATED TRANSACTIONS. The Virginia Stock Corporation Act (the "Virginia
Act") contains provisions governing "Affiliated Transactions". Affiliated
Transactions include certain mergers and share exchanges, certain material
dispositions of corporate assets not in the ordinary course of business, any
dissolution of a corporation proposed by or on behalf of an Interested
Shareholder (as defined below), and reclassifications, including reverse stock
splits, recapitalizations or mergers of a corporation with its subsidiaries, or
distributions or other transactions which have the effect of increasing the
percentage of voting shares beneficially owned by an Interested Shareholder by
more than 5%. For purposes of the Virginia Act, an Interested Shareholder is
defined as any beneficial owner of more than 10% of any class of the voting
securities of a Virginia corporation.
Subject to certain exceptions discussed below, the provisions governing
Affiliated Transactions require that, for three years following the date upon
which any shareholder becomes an Interested Shareholder, any Affiliated
Transaction must be approved by the affirmative vote of holders of two-thirds of
the outstanding shares of the corporation entitled to vote, other than the
shares beneficially owned by the Interested Shareholder, and by a majority (but
not less than two) of the Disinterested Directors (as defined). A Disinterested
Director is defined in the Virginia Act as a member of a corporation's board of
directors who (i) was a member before the later of January 1, 1988 or the date
on which an Interested Shareholder became an Interested Shareholder or (ii) was
recommended for election by, or was elected to fill a vacancy and received the
affirmative vote of, a majority of the Disinterested Directors then on the
corporation's board of directors. At the expiration of the three year period
after a shareholder becomes an Interested Shareholder, these provisions require
approval of the Affiliated Transaction by the affirmative vote of the holders of
two-thirds of the outstanding shares of the corporation entitled to vote, other
than those beneficially owned by the Interested Shareholder.
The principal exceptions to the special voting requirement apply to
Affiliated Transactions occurring after the three year period has expired and
require either that the transaction be approved by a majority of the
corporation's Disinterested Directors or that the transaction satisfy certain
fair price requirements of the statute. In general, the fair price requirements
provide that the shareholders must receive the higher of the highest per share
price for their shares as was paid by the Interested Shareholder for his or its
shares, or the fair market value of the shares. The fair price requirements also
require that, during the three years preceding the announcement of the proposed
Affiliated Transaction, all required dividends have been paid and no special
financial accommodations have been accorded the Interested Shareholder, unless
approved by a majority of the Disinterested Directors.
None of the foregoing limitations and special voting requirements applies
to a transaction with an Interested Shareholder who has been an Interested
Shareholder continuously since the effective date of the statute (January 26,
1988) or who became an Interested Shareholder by gift or inheritance from such a
person or whose acquisition of shares making such person an Interested
Shareholder was approved by a majority of the Disinterested Directors of the
corporation.
27
<PAGE>
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the Virginia Act provides that, by affirmative vote
of a majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation may adopt, by meeting certain voting requirements, an
amendment to its articles of incorporation or bylaws providing that the
Affiliated Transactions provisions shall not apply to the corporation.
Smithfield Foods Virginia has not adopted such an amendment.
CONTROL SHARE ACQUISITIONS. The Virginia Control Share Acquisitions statute
also is designed to afford shareholders of a public company incorporated in
Virginia protection against certain types of non-negotiated acquisitions in
which a person, entity, or group ("Acquiring Person") seeks to gain voting
control of that corporation. With certain enumerated exceptions, the statute
applies to acquisitions of shares of a corporation which would result in an
Acquiring Person's ownership of the corporation's shares entitled to vote in the
election of directors falling within any one of the following ranges: 20% to
33- 1/3%, 33- 1/3% to 50% or more than 50% (a "Control Share Acquisition").
Shares that are the subject of a Control Share Acquisition ("Control Shares")
will not be entitled to voting rights unless the holders of a majority of the
"Disinterested Shares" vote at an annual or special meeting of shareholders of
the corporation to accord the Control Shares with voting rights. Disinterested
Shares do not include shares owned by the Acquiring Person or by officers and
inside directors of the target company. Under certain circumstances, the statute
permits an Acquiring Person to call a special shareholders' meeting for the
purpose of considering granting voting rights to the holders of the Control
Shares. As a condition to having this matter considered at either an annual or
special meeting, the Acquiring Person must provide shareholders with detailed
disclosures about his identity, the method and financing of the Control Share
Acquisition and any plans to engage in certain transactions with, or to make
fundamental changes to, the corporation, its management or business. Under
certain circumstances, the statute grants dissenters' rights to shareholders who
vote against granting voting rights to the Control Shares. The Virginia Control
Share Acquisitions statute also enables a corporation to make provision for
redemption of Control Shares with no voting rights. A corporation may opt-out of
the statute by so providing in its Bylaws. Smithfield Foods Virginia has not
adopted such a provision. Among the acquisitions specifically excluded from the
statute are acquisitions to which the corporation is a party and which, in the
case of mergers or share exchanges, have been approved by the corporation's
shareholders under other provisions of the Virginia Act.
DESCRIPTION OF COMPANY CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000 shares
of Company Common Stock and 1,000,000 shares of Preferred Stock, par value $1.00
per share ("Company Preferred Stock") (subject to Proposal 3 above).
COMPANY COMMON STOCK. Holders of Company Common Stock are entitled to one
vote per share on all matters to be voted upon by the stockholders. Holders of
Company Common Stock do not have cumulative voting rights, and therefore holders
of a majority of the shares voting for the election of directors can elect all
of the directors. In such event, the holders of the remaining shares will not be
able to elect any directors. Holders of Company Common Stock are entitled to
receive such dividends as may be declared from time to time by the Board of
Directors out of funds legally available therefor, after payment of dividends
required to be paid on outstanding Company Preferred Stock, if any. In the event
of the liquidation, dissolution or winding up of the Company, the holders of
Company Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of Company
Preferred Stock then outstanding, if any. The Company Common Stock has no
preemptive or conversion rights and is not subject to further calls or
assessments by the Company. The Company Common Stock currently outstanding is
validly issued, fully paid and
28
<PAGE>
nonassessable. The Transfer Agent and Registrar for the Company Common Stock is
First Union National Bank of North Carolina, Charlotte, North Carolina.
COMPANY PREFERRED STOCK. The Board of Directors has the authority, without
any vote or action by the stockholders, to issue Company Preferred Stock in one
or more series and to fix the designations, preferences, rights, qualifications,
limitations and restrictions thereof, including the voting rights, dividends
rights, dividend rate, conversion rights, terms of redemption (including sinking
fund provisions), redemption price or prices, liquidation preferences and the
number of shares constituting any series. In addition, the issuance of Company
Preferred Stock by the Board of Directors could be utilized, under certain
circumstances, as a method of preventing a takeover of the Company. There are no
shares of Company Preferred Stock outstanding, and there are no agreements or
understandings for the designation of any series of Company Preferred Stock or
the issuance of shares thereunder, except pursuant to the preferred shares
purchase rights plan summarized below.
PREFERRED SHARE PURCHASE RIGHTS PLAN. On May 8, 1991, the Board of
Directors declared a dividend distribution of one Company Right on each
outstanding share of Company Common Stock pursuant to a preferred share purchase
rights plan and a related Rights Agreement between the Company and the Rights
Agent (currently, First Union National Bank of North Carolina) (as amended, the
"Plan"). In general the number of Company Rights outstanding equals the number
of shares of Company Common Stock outstanding from time to time. The Company
Rights will expire on May 31, 2001 unless previously exercised or redeemed at
the option of the Board of Directors for $.005 per Company Right.
Generally, under the terms of the Plan, the Company Rights will be
exercisable only if a person or group acquires 20% or more of the Company Common
Stock or announces a tender offer the consummation of which would result in
ownership by a person or group of 20% or more of the Company Common Stock. Each
Company Right entitles its holder to buy one one-thousandth of a share of Series
A Junior Participating Preferred Stock, par value $1.00 per share (the "Series A
Preferred Stock"), at an exercise price of $75, subject to further adjustment.
Each share of Series A Preferred Stock will entitle its holder to 1,000 votes
and will have an aggregate dividend rate of 1,000 times the amount, if any, paid
to holders of Company Common Stock. Currently, 25,000 shares of Series A
Preferred Stock have been reserved.
Under the terms of the Plan, if the Company is acquired in a merger or
other business combination transaction, each Company Right will entitle its
holder to purchase, at the Company Right's then-current exercise price, a number
of the acquiring company's common shares having a market value of twice such
price. In addition, if a person or group acquires 20% (or other applicable
percentage, as summarized above) or more of the outstanding Company Common
Stock, each Company Right will entitle its holder (other than such person or
members of such group) to purchase, at the Company Right's then-current exercise
price, a number of shares of Company Common Stock having a market value of twice
such price.
DESCRIPTION OF SMITHFIELD FOODS VIRGINIA CAPITAL STOCK
The authorized capital stock of Smithfield Foods Virginia consists of
25,000,000 shares of Smithfield Foods Virginia Common Stock and 1,000,000 shares
of Preferred Stock, par value $1.00 per share ("Smithfield Foods Virginia
Preferred Stock") (subject to Proposal 3 above). As discussed herein, the rights
of the holders of such capital stock are identical in all material respects to
those of the holders of Company capital stock.
SMITHFIELD FOODS VIRGINIA COMMON STOCK. Holders of Smithfield Foods
Virginia Common Stock are entitled to one vote per share on all matters to be
voted upon by the shareholders. Holders of Smithfield Foods Virginia Common
Stock do not have cumulative voting rights, and therefore holders of a majority
of the shares voting for the election of directors can elect all of the
directors. In such event, the holders of the remaining shares will not
29
<PAGE>
be able to elect any directors. Holders of Smithfield Foods Virginia Common
Stock are entitled to receive such dividends as may be declared from time to
time by the Board of Directors out of funds legally available therefor, after
payment of dividends required to be paid on outstanding Smithfield Foods
Virginia Preferred Stock, if any. In the event of the liquidation, dissolution
or winding up of Smithfield Foods Virginia, the holders of Smithfield Foods
Virginia Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior distribution rights of Smithfield
Foods Virginia Preferred Stock then outstanding, if any. The Smithfield Foods
Virginia Common Stock has no preemptive or conversion rights and is not subject
to further calls or assessments by Smithfield Foods Virginia. The Smithfield
Foods Virginia Common Stock which would be issued in connection with the
Reincorporation will be validly issued, fully paid and nonassessable. Upon the
Effective Time, the Transfer Agent and Registrar for Smithfield Foods Virginia
Common Stock is expected to be First Union National Bank of North Carolina,
Charlotte, North Carolina.
SMITHFIELD FOODS VIRGINIA PREFERRED STOCK. The Board of Directors has the
authority, without any vote or action by the shareholders, to issue Smithfield
Foods Virginia Preferred Stock in one or more series and to fix the
designations, preferences, rights, qualifications, limitations and restrictions
thereof, including the voting rights, dividends rights, dividend rate,
conversion rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series. In addition, the issuance of Smithfield Foods Virginia
Preferred Stock by the Board of Directors could be utilized, under certain
circumstances, as a method of preventing a takeover of Smithfield Foods
Virginia. There are no shares of Smithfield Foods Virginia Preferred Stock
outstanding, and there are no agreements or understandings for the designation
of any series of Smithfield Foods Virginia Preferred Stock or the issuance of
shares thereunder, except pursuant to the future preferred shares purchase
rights plan summarized below.
PREFERRED SHARE PURCHASE RIGHTS PLAN. Contemporaneously with the Effective
Time, the Board of Directors of Smithfield Foods Virginia intends to consider
and adopt an appropriate preferred share purchase rights plan which will be
identical in all material respects to the Company's Plan. Pursuant to such plan,
Smithfield Foods Virginia would issue rights corresponding in all material
respects to the Company Rights. The plan to be adopted by Smithfield Foods
Virginia will be governed by Virginia law.
RECOMMENDATION
Management and the Board of Directors of the Company believe the
Reincorporation Proposal, including the Agreement, is in the best interests of
the Company's stockholders and recommend a vote FOR the Reincorporation
Proposal, including the Agreement.
PROPOSAL 5
RATIFICATION OF
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of its Audit Committee, has
selected Arthur Andersen LLP as independent public accountants to examine and
report upon the financial statements of the Company and its consolidated
subsidiaries for the year ending May 3, 1998, and is submitting this matter to
the stockholders for their ratification. Arthur Andersen LLP has served as the
Company's independent public accountants since 1981. One or more representatives
of Arthur Andersen LLP 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.
30
<PAGE>
In the event the proposal to ratify the selection of Arthur Anderson LLP is
defeated, the adverse vote will be considered as a direction to the Board of
Directors to select other independent auditors for the next year. However,
because of the expense and difficulty in changing independent auditors after the
beginning of a year, the Board of Directors intends to allow the appointment for
fiscal 1998 to stand unless the Board of Directors finds other reasons for
making a change.
The Board of Directors of the Company recommends that you vote FOR the
ratification of the selection of Arthur Andersen LLP as independent public
accountants to examine and report upon the financial statements of the Company
and its consolidated subsidiaries for the year ending May 3, 1998.
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 1998
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, 1998. 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 APRIL 27, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, CAN
BE OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY, 900 DOMINION
TOWER, 999 WATERSIDE DRIVE, NORFOLK, VIRGINIA 23510, ATTENTION: AARON D. TRUB,
SECRETARY.
BY ORDER OF THE BOARD OF DIRECTORS,
AARON D. TRUB
SECRETARY
July 28, 1997
31
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REINCORPORATION AND MERGER
BETWEEN
SMITHFIELD FOODS, INC.
(A DELAWARE CORPORATION)
AND
SMITHFIELD FOODS VIRGINIA, INC.
(A VIRGINIA CORPORATION)
This Agreement and Plan of Reincorporation and Merger ("Agreement") is made
and entered into as of July 28, 1997 by and between SMITHFIELD FOODS, INC., a
Delaware Corporation ("Smithfield Foods Delaware"), and SMITHFIELD FOODS
VIRGINIA, INC., a Virginia corporation ("Smithfield Foods Virginia").
RECITALS
1. The Board of Directors of Smithfield Foods Delaware has determined that
it is in the best interests of Smithfield Foods Delaware and its stockholders
for Smithfield Foods Delaware to change its state of incorporation;
2. Smithfield Foods Delaware has caused Smithfield Foods Virginia to be
organized under Virginia law to facilitate the reincorporation of Smithfield
Foods Delaware in Virginia; and
3. The reincorporation will be effected by a merger under Delaware and
Virginia law of Smithfield Foods Delaware with and into Smithfield Foods
Virginia in which each share of common stock of Smithfield Foods Delaware is
converted into one share of common stock of Smithfield Foods Virginia; and
4. The respective Boards of Directors of Smithfield Foods Delaware and
Smithfield Foods Virginia have approved this Agreement and have directed that
this Agreement be submitted to a vote of their respective stockholders and
executed by the undersigned officers.
NOW, THEREFORE, Smithfield Foods Delaware and Smithfield Foods Virginia do
hereby agree as follows:
1. THE MERGER. Subject to the terms and conditions hereof, Smithfield Foods
Delaware shall be merged with and into Smithfield Foods Virginia in accordance
with the Virginia Stock Corporation Act and the Delaware General Corporation Law
(the "Merger"). Smithfield Foods Virginia shall be the surviving corporation.
Smithfield Foods Virginia shall succeed to and acquire all of the assets and
assume all of the liabilities (each, without limitation or modification,
whatsoever) of Smithfield Foods Delaware. The Merger shall become effective when
certificates of merger issued by the State Corporation Commission of Virginia
and by the Secretary of the State of Delaware shall have become effective (the
"Effective Time"). At the Effective Time the separate corporate existence of
Smithfield Foods Delaware shall cease, and the Merger shall have the effects
stated in Section 13.1-721 of the Virginia Stock Corporation Act. At the
Effective Time or as soon thereafter as possible, Smithfield Foods Virginia's
corporate name shall become Smithfield Foods, Inc.
2. ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. The
Articles of Incorporation and Bylaws of Smithfield Foods Virginia in effect
immediately prior to the consummation of the Merger shall be the Articles of
Incorporation and Bylaws of the surviving corporation and shall remain in effect
following the Effective Time until amended or repealed. The directors and
officers of Smithfield Foods Virginia
A-1
<PAGE>
immediately prior to the Effective Time shall be the directors and officers of
the surviving corporation until their successors shall have been duly elected
and qualified or as otherwise provided by law, or by the articles of
incorporation or bylaws of the surviving corporation.
3. CONVERSION OF SHARES; CANCELLATION OF CERTAIN RIGHTS AND SHARES. At the
Effective Time, each share of common stock, par value $0.50 per share, of
Smithfield Foods Delaware ("Smithfield Foods Delaware Common Stock") issued and
outstanding immediately prior to the Effective Time, by operation of law, shall
be automatically converted into one share of common stock, par value $0.50 per
share, of Smithfield Foods Virginia ("Smithfield Foods Virginia Common Stock").
No other property, shares, other securities or considerations of any type will
be distributed or issued in connection with or as a result of the Merger. At the
Effective Time, each Right to Purchase Series A Junior Participating Preferred
Stock of the Company (a "Right") shall be cancelled, without payment of any
consideration therefor. Also at the Effective Time, each share of Smithfield
Foods Virginia Common Stock outstanding immediately prior to the Effective Time
shall be cancelled, without payment of any consideration therefor. Each stock
certificate that represents shares of Smithfield Foods Delaware Common Stock,
after the Effective Time, shall represent the same number of shares of
Smithfield Foods Virginia Common Stock. Stockholders will not be required to
surrender stock certificates.
4. EMPLOYEE AND DIRECTOR STOCK PLANS. At the Effective Time, all stock
option and stock-based compensation plans of Smithfield Foods Delaware (the
"Smithfield Foods Delaware Plans") shall automatically be continued as and
become plans of Smithfield Foods Virginia ("Smithfield Foods Virginia Plans").
At the Effective Time, there shall be substituted for the options granted under
Smithfield Foods Delaware Plans ("Old Options"), new options ("New Options")
under Smithfield Foods Virginia Plans without any action on the part of
optionees, and each New Option shall be for the same number of shares of
Smithfield Foods Virginia Common Stock, exercisable at the same price and
subject to the same terms and conditions as each Old Option was with respect to
Smithfield Foods Delaware Common Stock. The substitution of New Options for Old
Options shall be done in accordance with the provisions of Section 425(a) of the
Internal Revenue Code of 1986. Under the Smithfield Foods Virginia Plans,
Smithfield Foods Virginia shall assume all of the rights and obligations of
Smithfield Foods Delaware under the Smithfield Foods Delaware Plans.
At the Effective Time, Smithfield Foods Virginia shall be deemed to have
reserved and authorized the issuance of the number of shares of Smithfield Foods
Virginia Common Stock under Smithfield Foods Virginia Plans that is equal to the
number of shares of Smithfield Foods Delaware Common Stock approved for issuance
under Smithfield Foods Delaware Plans that Smithfield Foods Delaware has not
issued under Smithfield Foods Delaware Plans prior to the Effective Time.
At the Effective Time, all rights (other than the Rights) to purchase, sell
or receive Smithfield Foods Delaware Common Stock and all rights to elect to
make payment in Smithfield Foods Delaware Common Stock under any agreement
between Smithfield Foods Delaware and any director, officer or employee thereof
or under any plan or program of Smithfield Foods Delaware shall automatically,
by operation of law, be converted into and shall become an identical right to
purchase, sell or receive Smithfield Foods Virginia Common Stock and an
identical right to make payment in Smithfield Foods Virginia Common Stock under
any such agreement between Smithfield Foods Delaware and any director, officer
or employee thereof or under such plan or program of Smithfield Foods Delaware.
5. CONDITIONS TO THE MERGER. The Merger shall not be consummated unless the
following conditions have been satisfied:
A-2
<PAGE>
(a) Holders of the issued and outstanding shares of Smithfield
Foods Delaware Common Stock shall have approved this Agreement in
accordance with Delaware law and the Certificate of Incorporation of
Smithfield Foods Delaware, and the sole shareholder of Smithfield Foods
Virginia shall have approved this Agreement, in accordance with Virginia
law. Neither of such approvals shall have been revoked at or prior to
the Effective Time.
(b) If, in the opinion of counsel to Smithfield Foods Virginia,
such registration is required, Smithfield Foods Virginia Common Stock to
be issued to the holders of Smithfield Foods Delaware Common Stock
pursuant to the Merger shall have been duly registered pursuant to
Section 5 of the Securities Act of 1933 and such registration shall not
be suspended at the Effective Time. Further, to the extent required in
the opinion of legal counsel for Smithfield Foods Virginia, Smithfield
Foods Virginia shall have complied with all applicable securities law of
states and other jurisdictions relating to such issuance of Smithfield
Foods Virginia Common Stock.
(c) Any and all approvals or consents shall have been obtained from
any governmental agency having jurisdiction, and from other third
parties that are, in the opinion of legal counsel for Smithfield Foods
Delaware or Smithfield Foods Virginia, required for the lawful
consummation of the Merger and the issuance and delivery of Smithfield
Foods Virginia Common Stock as contemplated by this Agreement, and such
approvals or consents shall not have been revoked.
(d) Smithfield Foods Delaware and Smithfield Foods Virginia shall
have received, with respect to federal income taxes, either (i) a ruling
from the Internal Revenue Service, or (ii) an opinion from McGuire,
Woods, Battle & Boothe, L.L.P., in either case acceptable in form,
qualification and substance to Smithfield Foods Delaware and Smithfield
Foods Virginia and their legal counsel, to the effect that:
(1) The Merger will qualify as a reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended;
(2) No gain or loss will be recognized by the stockholders of
Smithfield Foods Delaware upon conversion of their Smithfield Foods
Delaware Common Stock into Smithfield Foods Virginia Common Stock
pursuant to the Merger;
(3) No gain or loss will be recognized by Smithfield Foods
Delaware as a result of the Merger;
(4) The aggregate tax basis of Smithfield Foods Virginia Common
Stock received by each stockholder of Smithfield Foods Delaware in
the Merger will be equal to the aggregate tax basis of Smithfield
Foods Delaware Common Stock converted in exchange therefor; and
(5) The holding period of Smithfield Foods Virginia Common Stock
received by each stockholder of Smithfield Foods Delaware in the
Merger will include the period during which the stockholder held his
Smithfield Foods Delaware Common Stock converted therefor, provided
such Smithfield Foods Delaware Common Stock is held by the
stockholder as a capital asset on the date of the Merger.
6. ABANDONMENT OF AGREEMENT. This agreement may be abandoned unilaterally
by Smithfield Foods Delaware or by Smithfield Foods Virginia at any time before
the Effective Time in the event that (a) any action, suit, proceeding or claim
has been instituted, made or threatened relating to the Agreement which shall
make consummation of the transactions contemplated hereby inadvisable in the
opinion of Smithfield Foods
A-3
<PAGE>
Delaware or Smithfield Foods Virginia, respectively, or (b) for any other reason
consummation of the transactions contemplated hereby is inadvisable in the
opinion of Smithfield Foods Delaware or Smithfield Foods Virginia, in its
respective sole judgment. Such abandonment shall be effected by written notice
by Smithfield Foods Delaware or Smithfield Foods Virginia to the other party
hereto, authorized or approved by the Board of Directors of the party giving
such notice. Upon the giving of such notice, this Agreement shall be terminated
and there shall be no liability hereunder or on account of such termination on
the part of Smithfield Foods Delaware or Smithfield Foods Virginia or the
directors, officers, employees, agents or stockholders of any of them. In the
event of abandonment of this Agreement, Smithfield Foods Delaware shall pay the
fees and expenses incurred by itself and Smithfield Foods Virginia in connection
with this Agreement and the Merger.
7. AMENDMENTS. To the extent permitted by law, this Agreement may be
amended by a subsequent writing signed by the parties hereto with the
authorization or approval of the Board of Directors of each of the parties
hereto; provided, however, that after the stockholders of Smithfield Foods
Delaware have considered and approved this Agreement the provisions of Section 3
hereof relating to the consideration to be exchanged for shares of Smithfield
Foods Delaware Common Stock shall not be amended so as to decrease the amount or
change the form of such consideration without the further approval of Smithfield
Foods Delaware stockholders.
8. FURTHER ASSURANCES. From time to time, as and when required by
Smithfield Foods Virginia or by its successors or assigns, and to the extent
permitted by law, there shall be executed and delivered on behalf of Smithfield
Foods Delaware such deeds and other instruments, and there shall be taken or
caused to be taken by it such further and other actions as shall be appropriate
or necessary in order to vest or perfect in or conform of record or otherwise by
Smithfield Foods Virginia the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of Smithfield Foods Delaware and otherwise carry out the purposes of
this Agreement, and each of the directors and officers of Smithfield Foods
Virginia is fully authorized in the name and on behalf of Smithfield Foods
Delaware or otherwise to take any and all such action and to execute and deliver
any and all such deeds and other instruments.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts.
10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of Virginia, without regard to the conflicts of law
principles thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed on its behalf by its officers thereunto duly authorized, all as
of the date first above written.
SMITHFIELD FOODS, INC.
(a Delaware corporation)
By: /s/ AARON D. TRUB
----------------------------
Name: AARON D. TRUB
Title: Vice President, Secretary
and Treasurer
Attest: /s/ MICHAEL H. COLE
--------------------------
MICHAEL H. COLE
Assistant Secretary
A-4
<PAGE>
SMITHFIELD FOODS VIRGINIA, INC.
(a Virginia corporation)
By: /s/ AARON D. TRUB
---------------------------
Name: AARON D. TRUB
Title: President and Secretary
Attest: /s/ MICHAEL H. COLE
------------------------
Name: MICHAEL H. COLE
Title: Assistant Secretary
A-5
<PAGE>
EXHIBIT B
FORM OF
SMITHFIELD FOODS VIRGINIA, INC.
ARTICLES OF INCORPORATION
ARTICLE I
NAME
The name of the Corporation is Smithfield Foods Virginia, Inc.
ARTICLE II
PURPOSE
The Corporation shall have the power to engage in any lawful business not
required by the Virginia Stock Corporation Act to be stated in the Articles of
Incorporation.
ARTICLE III
AUTHORIZED SHARES
3.1 NUMBER AND DESIGNATION. The aggregate number and designation of shares which
the Corporation shall have the authority to issue and the par value per share
are as follows:
<TABLE>
<CAPTION>
Class Number of Shares Par Value
- ---------------------------- ---------------- ---------
<S> <C>
Preferred................... 1,000,000 $ 1.00
Common...................... 25,000,000* $ 0.50
</TABLE>
*100,000,000 if Proposal 3 is approved and implemented.
3.2 PREEMPTIVE RIGHTS. No holder of outstanding shares of any class shall
have any preemptive right with respect to (i) any shares of any class of the
Corporation, whether now or hereafter authorized, (ii) any warrants, rights or
options to purchase any such shares, or (iii) any obligations convertible into
or exchangeable for any such shares or into warrants, rights or options to
purchase any such shares.
3.3 SHAREHOLDER APPROVAL. An amendment to the Articles of Incorporation of
the Corporation shall be approved if a majority of the votes entitled to be cast
by each voting group entitled to vote on such action are cast in favor of such
action. Subject to the right of holders of any series of Preferred Stock to
elect or remove directors under specified circumstances, at a special meeting of
shareholders called expressly for that purpose, any director may be removed for
cause by a vote of the holders of a majority of the shares entitled to vote at
an election of directors. Any merger or share exchange to which the Corporation
is a party or any direct or indirect sale, lease, exchange or other disposition
of all or substantially all of the Corporation's property, otherwise than in the
usual and regular course of business, shall be approved if a majority of the
votes entitled to be cast by each voting group entitled to vote on such action
are cast in favor of such action; provided, however, that this sentence shall
not affect the power of the Board of Directors to condition its submission of
any plan of merger, share exchange or direct or indirect sale, lease, exchange
or other disposition of all or substantially all of the Corporation's
B-1
<PAGE>
property, otherwise than in the usual and regular course of business, on any
basis, including the requirement of a greater vote.
ARTICLE IV
PREFERRED SHARES
4.1 ISSUANCE IN SERIES. The Board of Directors is authorized to issue the
Preferred Shares from time to time in one or more series and to provide for the
designation, preferences, limitations and relative rights of the shares of each
series by the adoption of Articles of Amendment to the Articles of Incorporation
of the Corporation setting forth:
(i) The maximum number of shares in the series and the designation
of the series, which designation shall distinguish the shares thereof
from the shares of any other series or class;
(ii) Whether shares of the series shall have special, conditional
or limited voting rights, or no right to vote, except to the extent
prohibited by law;
(iii) Whether shares of the series are redeemable or convertible
(x) at the option of the Corporation, a shareholder or another person or
upon the occurrence of a designated event, (y) for cash, indebtedness,
securities or other property, and (z) in a designated amount or in an
amount determined in accordance with a designated formula or by
reference to extrinsic data or events;
(iv) Any right of holders of shares of the series to distributions,
calculated in any manner, including the rate or rates of dividends, and
whether dividends shall be cumulative, noncumulative or partially
cumulative;
(v) The amount payable upon the shares of the series in the event
of voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation;
(vi) Any preference of the shares of the series over the shares of
any other series or class with respect to distributions, including
dividends, and with respect to distributions upon the liquidation,
dissolution or winding up of the affairs of the Corporation; and
(vii) Any other preferences, limitations or specified rights
(including a right that no transaction of a specified nature shall be
consummated while any shares of such series remain outstanding except
upon the assent of all or a specified portion of such shares) now or
hereafter permitted by the laws of the Commonwealth of Virginia and not
inconsistent with the provisions of this Section 4.1.
4.2 ARTICLES OF AMENDMENT. Before the issuance of any shares of a series,
Articles of Amendment establishing such series shall be filed with and made
effective by the State Corporation Commission of Virginia, as required by law.
ARTICLE V
COMMON SHARES
5.1 VOTING RIGHTS. The holders of outstanding Common Shares shall, to the
exclusion of the holders of any other class of shares of the Corporation, have
the sole power to vote for the election of directors and for all other purposes
without limitation, except (i) as otherwise provided in the Articles of
Amendment establishing any series of Preferred Shares or (ii) as may be required
by law.
5.2 DISTRIBUTIONS. Subject to the rights of the holders of shares, if any,
ranking senior to the Common Shares as to dividends or rights in the
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of the Common Shares shall be entitled to distributions, including
dividends, when declared by the Board of
B-2
<PAGE>
Directors and to the net assets of the Corporation upon the liquidation,
dissolution or winding up of the affairs of the Corporation.
ARTICLE VI
REGISTERED OFFICE AND REGISTERED AGENT
The address of the initial registered office of the Corporation, which is
located in the County of Henrico, Virginia, is 5511 Staples Mill Road, Richmond,
Virginia 23228. The initial registered agent of the Corporation is Edward R.
Parker, whose business office is identical with the registered office and who is
a resident of Virginia and a member of the Virginia State Bar.
ARTICLE VII
LIMIT ON LIABILITY AND INDEMNIFICATION
7.1 DEFINITIONS. For purposes of this Article the following definitions
shall apply:
(i) "Corporation" means this Corporation only and no predecessor
entity or other legal entity;
(ii) "expenses" include counsel fees, expert witness fees, and
costs of investigation, litigation and appeal, as well as any amounts
expended in asserting a claim for indemnification;
(iii) "liability" means the obligation to pay a judgment,
settlement, penalty, fine, or other such obligation, including, without
limitation, any excise tax assessed with respect to an employee benefit
plan;
(iv) "legal entity" means a corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise;
(v) "predecessor entity" means a legal entity the existence of
which ceased upon its acquisition by the Corporation in a merger or
otherwise; and
(vi) "proceeding" means any threatened, pending, or completed
action, suit, proceeding or appeal whether civil, criminal,
administrative or investigative and whether formal or informal.
7.2 LIMIT ON LIABILITY. In every instance in which the Virginia Stock
Corporation Act, as it exists on the date hereof or may hereafter be amended,
permits the limitation or elimination of liability of directors or officers of a
corporation to the corporation or its shareholders, the directors and officers
of this Corporation shall not be liable to the Corporation or its shareholders.
7.3 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation shall
indemnify any individual who is, was or is threatened to be made a party to a
proceeding (including a proceeding by or in the right of the Corporation)
because such individual is or was a director or officer of the Corporation or
because such individual is or was serving the Corporation, or any other legal
entity in any capacity at the request of the Corporation while a director or
officer of the Corporation, against all liabilities and reasonable expenses
incurred in the proceeding except such liabilities and expenses as are incurred
because of such individual's willful misconduct or knowing violation of the
criminal law. Service as a director or officer of a legal entity controlled by
the Corporation shall be deemed service at the request of the Corporation. The
determination that indemnification under this Section 7.3 is permissible and the
evaluation as to the reasonableness of expenses in a specific case shall be
made, in the case of a director, as provided by law, and in the case of an
officer, as provided in Section 7.4 of this Article; provided, however, that if
a majority of the directors of the Corporation has changed after the date of the
alleged conduct giving rise to a claim for indemnification, such determination
and evaluation shall, at the option of the person claiming indemnification, be
made by special legal counsel agreed upon by the Board of Directors and such
B-3
<PAGE>
person. Unless a determination has been made that indemnification is not
permissible, the Corporation shall make advances and reimbursements for expenses
incurred by a director or officer in a proceeding upon receipt of an undertaking
from such director or officer to repay the same if it is ultimately determined
that such director or officer is not entitled to indemnification. Such
undertaking shall be an unlimited, unsecured general obligation of the director
or officer and shall be accepted without reference to such director's or
officer's ability to make repayment. The termination of a proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent shall not of itself create a presumption that a director or
officer acted in such a manner as to make such director or officer ineligible
for indemnification. The Corporation is authorized to contract in advance to
indemnify and make advances and reimbursements for expenses to any of its
directors or officers to the same extent provided in this Section 7.3.
7.4 INDEMNIFICATION OF OTHERS. The Corporation may, to a lesser extent or
to the same extent that it is required to provide indemnification and make
advances and reimbursements for expenses to its directors and officers pursuant
to Section 7.3, provide indemnification and make advances and reimbursements for
expenses to its employees and agents, the directors, officers, employees and
agents of its subsidiaries and predecessor entities, and any person serving any
other legal entity in any capacity at the request of the Corporation, and may
contract in advance to do so. The determination that indemnification under this
Section 7.4 is permissible, the authorization of such indemnification and the
evaluation as to the reasonableness of expenses in a specific case shall be made
as authorized from time to time by general or specific action of the Board of
Directors, which action may be taken before or after a claim for indemnification
is made, or as otherwise provided by law. No person's rights under Section 7.3
of this Article shall be limited by the provisions of this Section 7.4.
7.5 MISCELLANEOUS. The rights of each person entitled to indemnification
under this Article shall inure to the benefit of such person's heirs, executors
and administrators. Special legal counsel selected to make determinations under
this Article may be counsel for the Corporation. Indemnification pursuant to
this Article shall not be exclusive of any other right of indemnification to
which any person may be entitled, including indemnification pursuant to a valid
contract, indemnification by legal entities other than the Corporation and
indemnification under policies of insurance purchased and maintained by the
Corporation or others. However, no person shall be entitled to indemnification
by the Corporation to the extent such person is indemnified by another,
including an insurer. The Corporation is authorized to purchase and maintain
insurance against any liability it may have under this Article or to protect any
of the persons named above against any liability arising from their service to
the Corporation or any other legal entity at the request of the Corporation
regardless of the Corporation's power to indemnify against such liability. The
provisions of this Article shall not be deemed to preclude the Corporation from
entering into contracts otherwise permitted by law with any individuals or legal
entities, including those named above. If any provision of this Article or its
application to any person or circumstance is held invalid by a court of
competent jurisdiction, the invalidity shall not affect other provisions or
applications of this Article, and to this end the provisions of this Article are
severable.
7.6 AMENDMENTS. No amendment, modification or repeal of this Article shall
diminish the rights provided hereunder to any person arising from conduct or
events occurring before the adoption of such amendment, modification or repeal.
B-4
<PAGE>
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,
Aaron D. Trub, and each of them, proxies with full power of substitution, to
vote the shares of Common Stock in 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 28, 1997 or any adjournments
thereof.
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS: [ ] FOR all nominees listed
(except as indicated to the contrary below)
<CAPTION>
1. ELECTION OF DIRECTORS: [ ] WITHHOLD AUTHORITY to vote for all nominees
<CAPTION>
listed below
</TABLE>
<TABLE>
<S> <C>
Joseph W. Luter, III Robert L. Burrus, Jr. F. J. Faison, Jr. Joel W. Greenberg
Cecil W. Gwaltney George E. Hamilton, Jr. Richard J. Holland Roger R. Kapella
Lewis R. Little H. Gordon Maxwell, III Wendell H. Murphy William H. Prestage
Joseph B. Sebring Aaron D. Trub
</TABLE>
(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 1998 INCENTIVE BONUS PLAN applicable to the Company's
Chief Operating Officer:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION to increase the number of
authorized shares of Common Stock:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO APPROVE THE REINCORPORATION PROPOSAL, INCLUDING THE AGREEMENT AND
PLAN OF REINCORPORATION AND MERGER:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
5. PROPOSAL TO RATIFY THE SELECTION OF ARTHUR ANDERSEN LLP as the Company's
independent public accountants for the fiscal year ending May 3, 1998:
[ ] 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 ______________________, 1997
__________________________________
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.
