SMITHFIELD FOODS INC, DEF 14A, 1998-07-29

SMITHFIELD FOODS INC
DEF 14A, 1998-07-29
MEAT PACKING PLANTS

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SMITHFIELD FOODS, INC.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD AUGUST 27, 1998

As a shareholder of SMITHFIELD FOODS, INC., a Virginia corporation (the
"Company"), you are cordially invited to be present, either in person or by
proxy, at the Annual Meeting of Shareholders of the Company to be held at the
Omni Richmond Hotel, 100 South 12th Street, Richmond, Virginia at 2:00 p.m.,
local time, on August 27, 1998, for the following purposes:

1. To elect a Board of twelve (12) directors of the Company to serve
until the next Annual Meeting and until their successors are duly elected
and qualified;

2. To ratify the adoption of the Smithfield Foods, Inc. 1998 Stock
Incentive Plan;

3. To ratify the selection of Arthur Andersen LLP as independent public
accountants of the Company for the fiscal year ending May 2, 1999; and

4. To transact such other business as may properly come before the
meeting or any continuation or adjournment thereof.

Only shareholders of record at the close of business on July 10, 1998 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

Smithfield, Virginia
August 3, 1998
<PAGE>

SMITHFIELD FOODS, INC.
EXECUTIVE OFFICES
200 COMMERCE STREET
SMITHFIELD, VIRGINIA 23430

----------------
PROXY STATEMENT

FOR

ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD AUGUST 27, 1998

The Annual Meeting of Shareholders of SMITHFIELD FOODS, INC., a Virginia
corporation (the "Company"), will be held on August 27, 1998, at the time and
place and for the purposes set forth in the Notice of Annual Meeting of
Shareholders 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 ask 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 Georgeson & Company Inc. to assist in the
solicitation of proxies at an anticipated cost to the Company of $7,500 plus
expenses.

Any proxy given pursuant to this solicitation may be revoked by the filing
with and receipt by the Secretary of the Company of a written revocation or
duly executed proxy bearing a later date and does not preclude the shareholder
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 shareholder 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 shareholders on or about August 3, 1998.

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 10, 1998 (the "Record
Date") have the right to receive notice of and to vote at the Annual Meeting.
As of the Record Date, 37,537,362 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 Annual Meeting can
elect all of the directors.

A majority of the total votes entitled to be cast on matters to be
considered at the Annual Meeting constitutes a quorum. If a share is
represented for any purpose at the Annual Meeting, it is deemed to be present
for quorum purposes and for all other matters as well. Abstentions and shares
held of record by a broker or its nominee ("Broker Shares") that are voted on
any matter are included in determining the number of votes present or
represented at the Annual Meeting. However, Broker Shares that are not voted on
any matter at the Annual Meeting will not be included in determining whether a
quorum is present at such meeting.

The election of each nominee for director requires the affirmative vote of
the holders of the shares representing a plurality of the votes cast in the
election of directors. Votes that are withheld and Broker Shares that are not
voted in the election of directors will not be included in determining the
number of votes cast and, therefore, will have no effect on the election of
directors. Actions on all other matters to come before the meeting, including
Proposal No. 2, will be approved if the votes cast in favor of the action
exceed the votes cast against it. Abstentions and Broker Shares that are not
voted are not considered cast either for or against a matter and, therefore,
will have no effect on the outcome.

PRINCIPAL SHAREHOLDERS

The only persons known by the Company to beneficially own more than five
percent of the Company's Common Stock as of July 10, 1998, 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> <C> <C> <C>
Joseph W. Luter, III
Smithfield Foods, Inc.
200 Commerce Street
Smithfield, VA 23430 2,285,618 1,650,064 (2) 3,935,682 (2) 10.2%
Carroll's Foods, Inc.
P.O. Drawer 356
Warsaw, NC 28398 2,956,000 -- 2,956,000 (3) 7.9%
Montgomery Asset Management, L.P.
101 California Street
San Francisco, CA 94111 2,346,000 -- (4) 2,346,000 (4) 6.2%
</TABLE>

- ----------
(1) Pursuant to current regulations of the Securities and Exchange
Commission, securities must be listed as "beneficially owned" by a person who
directly or indirectly has or shares the power to vote ("voting power") or

2
<PAGE>

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 650,064 shares owned by a corporation of which Mr. Luter is
an officer, director and the owner of 81% of its capital stock and 1,000,000
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 650,064 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 shareholder 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
January 30, 1998, filed by Montgomery Asset Management, L.P. ("Montgomery"),
according to which Montgomery holds sole dispositive power with respect to all
such shares and sole voting power with respect to 1,658,000 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 except Timothy A. Seely
are currently directors and were elected at the last Annual Meeting of
Shareholders. The persons elected will hold office as directors of the Company
until the next Annual Meeting of Shareholders 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, and 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 (59) 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. (63) 1996
Partner in the law firm of McGuire, Woods, Battle & Boothe LLP, Richmond, Virginia;
Director, CSX Corporation, Heilig-Meyers Company, Concepts Direct, Inc., S&K Famous
Brands, Inc. and O'Sullivan Corp.
F. J. Faison, Jr. (64) 1991
President of Carroll's Foods, Inc., Warsaw, North Carolina, a hog and turkey producer
Joel W. Greenberg (60) 1987
Commodity Analyst, Alaron Trading Corp., Chicago, Illinois, a commodities brokerage
firm
George E. Hamilton, Jr. (82) 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 (72) 1978
Chairman of the Board of The Farmers Bank, Windsor, Virginia
Roger R. Kapella (56) 1992
President and Chief Operating Officer of Patrick Cudahy Incorporated ("Patrick Cudahy"),
a wholly-owned subsidiary of the Company
Lewis R. Little (54) 1993
President and Chief Operating Officer of the Company and Smithfield Packing since
November 1996; President and Chief Operating Officer of Lykes Meat Group, Inc.
("Lykes"), a wholly-owned subsidiary of the Company, since June 1998; President and
Chief Operating Officer of Gwaltney of Smithfield, Ltd. ("Gwaltney"), a wholly-owned
subsidiary of the Company, from May 1993 until November 1996
</TABLE>

4
<PAGE>

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 shareholder 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 shareholder'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 6,
1998, or by United States mail, postage prepaid, to the Secretary postmarked
not later than August 6, 1998. Any such notice must set forth (i) the name and
address of the shareholder who intends to make the nomination, (ii) the name,
address and principal occupation of each proposed nominee, (iii) a
representation that the shareholder 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 "1934 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 May 3, 1998, the Company believes that,
except for one late filing of a Form 4 with respect to one transaction by Mr.
Luter, 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
10, 1998, 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 9 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> <C> <C> <C>
Robert L. Burrus, Jr. 1,000 -- 1,000 *
F. J. Faison, Jr. -- 2,956,000 (2) 2,956,000 (2) 7.9%
Joel W. Greenberg 4,000 2,000 (3) 6,000 (3) *
George E. Hamilton, Jr. 120,000 9,000 (4) 129,000 (4) *
Richard J. Holland 18,800 -- 18,800 *
Roger R. Kapella 24,000 40,000 (5) 64,000 (5) *
Lewis R. Little 10,000 -- 10,000 *
Joseph W. Luter, III 2,285,618 1,650,064 (6) 3,935,682 (6) 10.2%
William H. Prestage -- 120,000 (7) 120,000 (7) *
Joseph B. Sebring -- -- -- *
Timothy A. Seely 1,400 -- 1,400 *
Aaron D. Trub 60,364 173,000 (8) 233,364 (8) *
All current directors and
executive officers as
a group (14 persons) 2,565,182 4,990,064 (9) 7,555,246 (9) 19.5%
</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 2,956,000 shares owned of record by Carroll's Swine
Investment Partnership, a North Carolina partnership between Carroll's Foods,
Inc. and Carroll's Foods of Virginia, Inc. Mr. Faison is an officer and
director of Carroll's Foods, Inc. and Carroll's Foods of Virginia, Inc., but is
not a shareholder 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 2,000 shares owned by Mr. Greenberg's spouse with respect to
which Mr. Greenberg disclaims beneficial ownership.

6
<PAGE>

(4) Includes 9,000 shares owned by Mr. Hamilton's son with respect to
which Mr. Hamilton disclaims beneficial ownership.

(5) Includes 40,000 shares subject to presently exercisable stock options.

(6) Reflects 650,064 shares owned by a corporation of which Mr. Luter is
an officer, director and the owner of 81% of its capital stock and 1,000,000
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 650,064 shares owned by the corporation.
Mr. Luter may be deemed a control person of the Company.

(7) Reflects 120,000 shares owned by Prestage Farms, Inc., of which Mr.
Prestage is an officer, director and the principal shareholder. Prestage Farms,
Inc. has sole voting power and sole dispositive power with respect to such
shares.

(8) Includes 100,000 shares subject to presently exercisable stock
options. Also includes 57,000 shares owned by Mr. Trub's spouse and 16,000
shares owned by Mr. Trub's daughter with respect to all of which Mr. Trub
disclaims beneficial ownership.

(9) Includes 1,180,000 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, as well as an Independent
Subcommittee of the Compensation Committee. 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 no meetings in fiscal
1998.

The Audit Committee is composed of Messrs. Greenberg and Prestage. 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 1998.

The Compensation Committee is composed of Messrs. Burrus, Greenberg and
Holland. The principal functions of the Compensation Committee are to establish
overall compensation policies for the Company, to review recommendations
submitted to it by the Company's management with respect to the compensation of
the officers of the Company and its subsidiaries and the directors of the
Company, and to make such recommendations to the Board of Directors of the
Company as its review indicates. The committee held one meeting in fiscal 1998.

The Independent Subcommittee of the Compensation Committee is composed of
Messrs. Greenberg and Holland. The Independent Subcommittee approves certain
transactions in the Company's securities, including grants and awards of stock
options, in order to qualify those transactions under the exemptive provisions
of Rules 16b-3(d) and (e) under the 1934 Act. It also makes determinations with
respect to performance-based

7
<PAGE>

bonuses for the purposes of Section 162(m) of the Internal Revenue Code (the
"Code"). The Independent Subcommittee met nine times in fiscal 1998.

The Board of Directors held eight meetings during fiscal 1998, including
four regular meetings. All directors except for Mr. Sebring attended 75% or
more of these meetings, including regularly scheduled and special meetings, and
the meetings of all committees of the Board on which they served that were held
in the past fiscal year during the periods in which they were directors or
served on such committees.

Directors who are not employees of the Company or any of its subsidiaries
received in fiscal 1998 an annual retainer of $5,000, $1,000 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.

8
<PAGE>

EXECUTIVE COMPENSATION

The table below sets forth, for the fiscal years ended May 3, 1998, April
27, 1997, and April 28, 1996, the annual and long-term compensation for
services in all capacities to the Company and its subsidiaries of those persons
who at May 3, 1998, were the Company's Chief Executive Officer and the next
four most highly 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> <C> <C> <C> <C>
Joseph W. Luter, III 1998 628,077 1,680,833 -- 164,988 (2)
Chairman of the Board 1997 420,000 1,400,078 -- 2,019
and Chief Executive 1996 420,000 402,786 -- --
Officer of the Company
Lewis R. Little 1998 628,077 915,416 -- --
President and Chief 1997 355,385 724,635 70,000 --
Operating Officer of the 1996 270,000 190,555 -- --
Company, Lykes and
Smithfield Packing
Joseph B. Sebring 1998 550,000 774,507 -- --
President and Chief 1997 400,000 344,103 -- --
Operating Officer of 1996 138,402 100,000 40,000 --
John Morrell
Timothy A. Seely 1998 305,770 387,403 50,000 --
President and Chief 1997 194,615 290,501 -- --
Operating Officer of 1996 120,000 95,278 -- --
Gwaltney
Roger R. Kapella 1998 160,529 323,759 -- --
President and Chief 1997 157,500 266,257 -- --
Operating Officer of 1996 157,500 217,985 -- --
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.

(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

9
<PAGE>

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 1998 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 May 3, 1998 for the period commencing on the date the premiums were
paid until May 3, 1998. 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 Company's 1992 Stock
Incentive Plan during the last completed fiscal year to any of the Named
Executive Officers:

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS PER OPTION TERM(1)
- ---------------------------------------------------------------------------------- ----------------------
PERCENT OF TOTAL
OPTIONS OPTIONS GRANTED EXERCISE OR
GRANTED(2) TO EMPLOYEES BASE PRICE EXPIRATION
NAME (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ------------------ ------------ ----------------- ------------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Timothy A. Seely 50,000 18.9% 26.25 5/19/2007 825,424 2,091,787
</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. Seely were granted on May 19, 1997, 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.

10
<PAGE>

There were no option exercises during fiscal 1998 by any of the Named
Executive Officers. The table below sets forth information with respect to the
number and value of options held at May 3, 1998 by each of the Named Executive
Officers.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END UNEXERCISED OPTION VALUES

<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF SECURITIES VALUE (1) OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE MONEY (2)
OPTIONS\SARS AT OPTIONS\SARS AT
SHARES ACQURIED VALUE (1) FY-END (#) FY-END ($)
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------- ----------------- -------------- --------------------------- --------------------------
<S> <C> <C> <C> <C>
Joseph W. Luter, III -- -- 1,000,000 / 200,000 26,687,500 / 3,843,700
Lewis R. Little -- -- 0 / 200,000 0 / 2,185,575
Joseph B. Sebring -- -- 0 / 40,000 0 / 422,500
Timothy A. Seely -- -- 0 / 70,000 0 / 283,125
Roger R. Kapella -- -- 40,000 / 70,000 1,067,500 / 1,345,295
</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") and the Independent
Subcommittee of the Committee (the "Subcommittee") believe that corporate
performance and, in turn, shareholder value are enhanced by an alignment
between the financial interests of shareholders and those of the Company's
employees, including its senior managers. Accordingly, the Committee, the
Subcommittee and the Company adhere to the concept of pay-for-performance. The
Company relies on incentive compensation programs to motivate employees. These
programs are variable and closely tied to corporate, business unit and/or
individual performance. Under these programs, a major portion of executive
compensation is based on the Company's performance in a manner that supports
building shareholder value. The Company encourages executives to hold
significant interests in the Company's Common Stock, and in part the
compensation programs are designed to promote that objective.

The report in this section is a joint report by the Committee and the
Subcommittee concerning the policies followed and decisions made with respect
to the compensation of executive officers, including the Named Executive
Officers, for fiscal 1998. Information concerning decisions made by the
Subcommittee is provided by the Subcommittee only; all other information is
provided by the Committee.

11
<PAGE>

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. The incentive compensation programs, both cash and non-cash, are tied
to the financial performance of the Company or certain of its subsidiaries.

Base salaries are generally established at the minimum levels believed to
be necessary to attract and retain an effective management group when
considered 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 remained basically unchanged from fiscal 1992 through fiscal 1997. In
May 1997, in recognition of the outstanding performance of the Company's
operating subsidiaries relative to other companies in the meat processing
industry and to insure that the Company continues to attract and retain high
quality senior management, the Committee approved increases in the base
salaries of the Company's executive officers, effective as of the beginning of
fiscal 1998.

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
Subcommittee 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
Company's policy that a substantial portion of executive compensation be "at
risk," bonus awards for executive officers in recent years have ranged from 15%
to 77% of an executive officer's total cash compensation depending on Company,
relevant subsidiary and individual performance. Bonus awards for fiscal 1998
averaged approximately 58% of the total cash compensation paid to all executive
officers as compared to 65% in fiscal 1997 and 43% in fiscal 1996.

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 shareholders. In evaluating
management's recommendations for the recipients and size of stock option
awards, the Subcommittee 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 1998, 15 eligible employees (including one executive officer) were
awarded stock options to acquire a total of 265,000 shares of Common Stock.

CEO COMPENSATION

The compensation of Joseph W. Luter, III, the Chairman of the Board and
Chief Executive Officer of the Company, for fiscal 1998 was determined in
accordance with the guidelines described above. Consistent with the Company's
policy that a major part of each executive officer's compensation be
performance based, Mr. Luter's base salary remained basically unchanged from
fiscal 1992 through fiscal 1997. For the reasons previously discussed, the
Committee approved an increase to Mr. Luter's base salary for fiscal 1998 from
$420,000 to $620,000.

Mr. Luter's bonus award for fiscal 1998 was paid under the 1994 Incentive
Bonus Plan approved by shareholders. Under that plan, Mr. Luter was entitled to
1% of the first $15 million of the Company's fiscal 1998 net income before
income taxes, incentive payments due to executives and accounting for minority
interests, and

12
<PAGE>

2% of such net income in excess of $15 million. Mr. Luter's bonus represented
approximately 73% of his total cash compensation. Mr. Luter was not awarded
stock options during fiscal 1998.

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 makes specific recommendations
on an annual basis to the Board of Directors. The Board of Directors has never
modified or rejected in any material way any recommendation of the Committee.

Messrs. Greenberg and Holland, who are non-employee directors under Rule
16b-3 of the 1934 Act and outside directors under Section 162(m) of the Code,
are the members of the Subcommittee. The Subcommittee has exclusive authority
and responsibility for, and with respect to, any grants or awards under the
Company's stock-related plans. The Subcommittee also has exclusive authority to
determine whether certain performance criteria have been met and the amount of
bonus to be paid to executive officers for bonuses qualifying under Section
162(m) of the Code.

Section 162(m) of the Code 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 generally
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

13
<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 April 30, 1993
and that dividends were reinvested.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG SMITHFIELD FOODS, INC., NASDAQ MARKET INDEX AND SIC CODE INDEX

[GRAPH]

1993 1994 1995 1996 1997 1998
SMITHFIELD FOODS, INC. 100 166.96 158.26 205.22 336.52 427.83
MEAT PACKING INDEX 100 115.53 143.41 169.24 225.04 240.04
NASDAQ MARKET VLAUE INDEX 100 112.24 122.56 171.08 182.36 270.85

ASSUMES $100 INVESTED APR. 30, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING MAY 3, 1998

14
<PAGE>

PENSION PLANS

The Company and its subsidiaries sponsor three pension plans covering the
Company's salaried employees. The Company, Gwaltney, Patrick Cudahy, Smithfield
Packing and Brown's of Carolina, Inc. maintain a qualified non-contributory
pension plan covering their salaried employees (the "Company Plan"). A similar
plan covers salaried employees of John Morrell (the "John Morrell Plan"). The
salaried employees participating in the plans mentioned above whose salaries
exceed $160,000 per year are also covered by a nonqualified Supplemental
Pension Plan (the "Supplemental Plan").

The qualified plans provide for retirement benefits which are a function
of a participant's average remuneration during his or her highest five
consecutive calendar years of employment and aggregate years of service. The
Supplemental Plan replaces benefits lost under the qualified plans due to the
imposition of the Internal Revenue Code compensation and benefit limits. These
Supplemental Plan benefits are calculated using the Company Plan's benefit
formula, reduced by the benefits payable under the Company Plan and/or the John
Morrell Plan.

The following table shows the estimated annual straight-life annuity
benefit payable from all three pension plans combined, upon retirement at age
65 in 1998, based on the specific remuneration and years of service
classifications set forth below.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
SELECTED YEARS OF SERVICE
AVERAGE -----------------------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 250,000 $ 60,000 $ 80,000 $ 100,000 $ 120,000 $ 140,000
500,000 120,000 160,000 210,000 250,000 290,000
750,000 190,000 250,000 310,000 370,000 440,000
1,000,000 250,000 330,000 420,000 500,000 590,000
1,500,000 380,000 500,000 630,000 760,000 880,000
2,000,000 510,000 670,000 840,000 1,010,000 1,180,000
2,500,000 630,000 840,000 1,060,000 1,270,000 1,480,000
3,000,000 760,000 1,010,000 1,270,000 1,520,000 1,780,000
3,500,000 890,000 1,180,000 1,480,000 1,780,000 2,070,000
</TABLE>

The remuneration covered by the Supplemental Plan consists of the cash
compensation disclosed in the annual compensation reported in the Summary
Compensation Table, except that it is determined on a calendar year basis. The
average remuneration above is the average of the five highest calendar years'
cash compensation during a participant's career.

As of May 3, 1998, Messrs. Luter, Little, Seely and Kapella are credited
with 31, 35, 4 and 12 years of service, respectively, under the Company Plan
and the Supplemental Plan. Mr. Sebring is credited with three years of service
under the John Morrell Plan and the Supplemental Plan. The benefits shown in
the table are not subject to any reduction for benefits paid from other
sources, including Social Security.

15
<PAGE>

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 $322,000 of its fresh pork and processed
meat products to Luter Packing Company in fiscal 1998. 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, the Company purchased $18,524,000 of comminuted chicken
meat for use in its frank and bologna products from a company 48% of the
capital stock of which was owned by Mr. Luter's three adult children. The
Company believes that the terms under which the Company made such purchases
were as advantageous to the Company as those the Company 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, 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
$1,504,000 were outstanding as of May 3, 1998. 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. Brown's hog
production operations on the B&G land generated $7,944,000 of sales to other
subsidiaries of the Company 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) multi-year
purchase agreements 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 $7,386,000 in fiscal 1998. Pursuant to the purchase
agreements, the Company purchased $79,087,000 and $246,371,000 of live hogs
from CFOV and CFI, respectively, 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 $359,000 in fiscal 1998 compared to decreased raw material
costs of $5,245,000 in fiscal 1997.

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

16
<PAGE>

Company has a market-indexed multi-year purchase agreement 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 $168,829,000 of live hogs from PFI in fiscal
1998. The Company believes that the prices paid under the purchase agreement
with PFI are equivalent to market.

Wendell H. Murphy, a director of the Company until his resignation in May
1998, 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 market-indexed
multi-year purchase agreement with MFF which obligates the Company to purchase
hogs finished by MFF in the Southeast. Pursuant to the purchase agreement, the
Company purchased $366,397,000 of live hogs from MFF in fiscal 1998. The
Company believes that the prices paid under the purchase agreement with MFF are
equivalent to market.

H. Gordon Maxwell, III, a director of the Company until his resignation in
May 1998, 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
market-indexed, multi-year purchase agreement 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 $118,041,000 of live
hogs from MFI 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 shareholder of a corporation which owns a controlling interest in
Carolina Turkeys, Inc. ("CTI"). During fiscal 1998, the Company purchased
$1,252,000 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.

Smithfield of Utah, Inc. ("Smithfield-Utah"), a wholly-owned subsidiary of
the Company, is a participant in a joint hog production arrangement with
certain other companies to produce hogs in the state of Utah for sale to an
unrelated party. During fiscal 1998, the other companies participating in the
joint hog production arrangement were (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 president and a director, (ii) West Isle Partners, Inc.
("WIPI"), of which Wendell H. Murphy, a director of the Company until his
resignation in May 1998, 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 shareholders.
Smithfield-Utah contributed $6,300,000 to the arrangement in fiscal 1998 and
had a 37% interest in its profits or losses as of May 3, 1998. The Company
believes that the terms of the joint arrangement are no less favorable to the
Company than if entered into with unaffiliated parties. In June 1998, the
Company paid $15,000,000 to WIPI in connection with WIPI's complete withdrawal
from the arrangement.

Cecil W. Gwaltney, who was serving as a director of the Company at the
time of his death in September 1997, was chairman of the board of Gwaltney
Motor Company ("GMC"), which was paid $899,000 by the Company in fiscal 1998
for automotive equipment and parts, and maintenance and leasing services. The
Company leases substantially all of its automobiles under three-year leases
arranged by GMC. As of May 3, 1998, the Company was obligated to make a total
of $1,249,000 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.

17
<PAGE>

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 LLP, which has provided legal services to the Company on a regular
basis since 1985.

PROPOSAL 2

APPROVAL OF 1998 STOCK INCENTIVE PLAN

INTRODUCTION

The Board of Directors of the Company has approved and adopted the
Smithfield Foods, Inc. 1998 Stock Incentive Plan (the "1998 Plan") and directed
that it be submitted to shareholders for approval.

The 1998 Plan became effective as of July 1, 1998. Unless sooner
terminated by the Board of Directors, the Plan will terminate on June 30, 2008.
No awards may be made under the 1998 Plan after its termination.

The 1998 Plan is intended to provide a means for selected key management
employees of the Company to increase their personal financial interest in the
Company, thereby stimulating the efforts of these employees and strengthening
their desire to remain with the Company (references to the "Company" in this
section will include any parent and subsidiary corporations).

The principal features of the 1998 Plan are summarized below. The summary
is qualified by reference to the complete text of the 1998 Plan, which is
attached as Exhibit A. Capitalized terms are defined in the 1998 Plan.

GENERAL

The 1998 Plan authorizes the reservation of 1,500,000 shares of Company
Stock for issuance pursuant to Incentive Awards. Such Incentive Awards may be
in the form of Performance Awards, Incentive Stock Options or Nonstatutory
Stock Options, as described below. 1998 Plan Participants will pay no
consideration for awards under the 1998 Plan, although they will pay to
exercise options, as further described below.

If an award under the 1998 Plan or the Company's prior stock option plans
is cancelled, terminates or lapses unexercised, any unissued shares allocable
to such award may be subjected again to an Incentive Award under the 1998 Plan.
The number of shares that may be issued under the 1998 Plan will be adjusted in
the event of a future stock dividend, stock split or other similar event
affecting the Company Stock.

No more than 300,000 shares may be allocated to the Incentive Awards that
are granted to any Participant during a single tax year.

ELIGIBILITY

All present and future employees of the Company who hold positions with
management responsibilities are eligible to receive awards under the 1998 Plan.
The Company estimates that it has approximately 90 such employees (55 of whom
are officers) who may be eligible for awards.

18
<PAGE>

ADMINISTRATION

The 1998 Plan will be administered by a committee or subcommittee composed
of non-employee directors of the Company (the "Committee"). The 1998 Plan is
intended to conform to the provisions of SEC Rule 16b-3 and to meet the
requirements for performance-based compensation under Section 162(m) of the
Code. The Committee has the power and complete discretion to determine when to
grant awards, which eligible employees will receive awards, whether the award
will be an Incentive or Nonstatutory Stock Option and the number of shares to
be allocated to each award. The Committee may impose conditions on the exercise
of options, and may impose such other restrictions and requirements as it may
deem appropriate.

PERFORMANCE AWARDS

Performance Awards are subject to the achievement of pre-established
Performance Goals and will be administered to comply with the requirements of
Section 162(m) of the Code. Performance Goals will use objective and
quantifiable Performance Criteria that include measures for the Company or a
subsidiary such as asset growth; pre-tax earnings; pre-tax profits; earnings
per share; revenues; net income; and other measures listed in Section 2(t) of
the 1998 Plan. The Committee sets target and maximum amounts payable under the
Performance Award. The Participant receives the appropriate payments at the end
of the performance period if the Performance Goals (and other terms and
conditions of the award) are met. The amount payable under a Performance Award
to any Participant for a Taxable Year may not exceed the greater of $2,000,000
or 3% of the Company's net income before income taxes, incentive payments and
accounting for minority interests for the year for which the Performance Award
is made. The actual payments under a Performance Award will be in cash.

STOCK OPTIONS

Options to purchase shares of Company Stock granted under the 1998 Plan
may be Incentive Stock Options or Nonstatutory Stock Options. Incentive Stock
Options qualify for income tax treatment under Section 422 of the Code, while
Nonstatutory Stock Options do not. The purchase price of Company Stock covered
by an option may not be less than 100% (or, in the case of an Incentive Stock
Option granted to a 10% shareholder, 110%) of the fair market value of the
Company Stock on the date of the option grant. Fair market value means the last
sales price as quoted on The Nasdaq National Market.

The value of Incentive Stock Options, based on the exercise price, that
can be exercisable for the first time in any calendar year under the 1998 Plan
or any other similar plan maintained by the Company is limited to $100,000 for
each Participant.

Options may only be exercised five years after the date of grant except as
otherwise specified by the Committee. Incentive Stock Options may not be
exercised after the first to occur of (i) 10 years (or, in the case of an
Incentive Stock Option granted to a 10% shareholder, five years) from the date
on which the Incentive Stock Option was granted, (ii) three months from the
optionee's termination of employment with the Company for reasons other than
death or disability, or (iii) one year from the optionee's termination of
employment on account of death or disability. Unless otherwise provided in an
Incentive Award, options do not vest in less than five years. The Committee may
grant options with a provision that an option not otherwise exercisable will
become exercisable upon a Change of Control. The Committee may also accelerate
the expiration date of outstanding options in the event of a Change of Control.

19
<PAGE>

An optionee exercising an option may pay the purchase price in cash. If
the option provides, payment may also be made by delivering or having withheld
shares of Company Stock, or by delivering an exercise notice together with
irrevocable instructions to a broker to deliver to the Company the amount of
sale or loan proceeds from the option shares. The Plan does not provide for
"reload" options and does not allow repricing of options at a lower exercise
price.

The Company's Common Stock is traded on The Nasdaq National Market and on
July 10, 1998, the last reported sales price was $29.3125.

TRANSFERABILITY OF AWARDS

Nonstatutory Stock Options are transferable to the extent provided in an
Incentive Award or by Committee action. All other Incentive Awards are not
transferable except by will or the laws of descent and distribution.

AMENDMENT OF THE 1998 PLAN AND AWARDS

The Board of Directors may amend the 1998 Plan in such respects as it
deems advisable. Shareholder approval must be obtained for any amendment to the
extent required by federal or state law or under the rules of a stock exchange.
Awards granted under the 1998 Plan may be amended with the consent of the
recipient so long as the amended award is consistent with the terms of the
Plan.

FEDERAL INCOME TAX CONSEQUENCES

Generally, a Participant will not incur federal income tax when he is
granted Performance Awards, Nonstatutory Stock Options or Incentive Stock
Options.

A Participant who receives payment under a Performance Award will include
in income an amount equal to the cash that is paid to the Participant under the
Performance Award.

Upon exercise of a Nonstatutory Stock Option, a Participant generally will
recognize compensation income equal to the difference between the fair market
value of the Company Stock on the date of the exercise and the option price.
Generally, such amounts will be included in the Participant's gross income in
the taxable year in which exercise occurs. The compensation income recognized
by the Participant is subject to income tax withholding by the Company.

Upon exercise of an Incentive Stock Option, a Participant generally will
not recognize income subject to tax, unless the Participant is subject to the
alternative minimum tax. If the Participant holds the Company Stock acquired
upon the exercise of an Incentive Stock Option until the later of two years
after the option was awarded to the Participant or one year after the Company
Stock was issued to the Participant, then any profit or loss realized on the
later sale or exchange of the Company Stock will be capital gain or loss.

A Participant may pay the purchase price on the exercise of a Nonstatutory
Stock Option or an Incentive Stock Option by delivery of cash. If the option
agreement or the Committee otherwise provides, a Participant may also pay with
shares of Company Stock, or a combination of cash and Company Stock. Usually
when a Participant delivers shares of Company Stock in satisfaction of all, or
any part, of the purchase price, no taxable gain is recognized on any
appreciation in the value of the previously held Company Stock.

20
<PAGE>

Assuming that a Participant's compensation is otherwise reasonable, the
Company usually will be entitled to a business expense deduction at the time
and in the amount that the recipient of an Incentive Award recognizes ordinary
compensation income in connection therewith, as described above. The Company
generally does not receive a deduction in connection with the exercise of an
Incentive Stock Option, unless the Participant disposes of Company Stock
received upon exercise of such option before the end of the holding period
requirements.

This summary of federal income tax consequences of Performance Awards,
Nonstatutory Stock Options and Incentive Stock Options does not purport to be
complete. There may also be state and local income taxes applicable to these
transactions.

NEW PLAN BENEFITS TABLE

No stock options have been awarded to date under the 1998 Plan.
Performance awards have been made to certain eligible employees under the 1998
Plan, subject to shareholder approval of the plan; however, the amounts payable
for fiscal 1999 under such awards are not determinable at this time. The
following table shows the amounts which would have been paid to the persons and
groups listed below had the performance awards for fiscal 1999 been made for
fiscal 1998 instead.

1998 STOCK INCENTIVE PLAN

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION VALUE OF PERFORMANCE AWARD ($)
- ------------------------------------------- -------------------------------
<S> <C>
Joseph W. Luter, III 1,680,833
Chairman of the Board and Chief Executive
Officer of the Company
Lewis R. Little 1,205,833
President and Chief Operating Officer of
the Company, Lykes and Smithfield Packing
Joseph B. Sebring 1,086,760
President and Chief Operating Officer of
John Morrell
Timothy A. Seely 437,403
President and Chief Operating Officer
of Gwaltney
Roger R. Kapella 323,759
President and Chief Operating Officer of
Patrick Cudahy
Executive Group (eight persons) 4,734,588
Non-Executive Directors Group Not applicable
Non-Executive Officer Employee Group 0
</TABLE>

21
<PAGE>

VOTE REQUIRED

Approval of the Smithfield Foods, Inc. 1998 Stock Incentive Plan requires
the affirmative vote of the holders of a majority of the shares of Common Stock
voting at the Annual Meeting.

The Board of Directors believes that approval of the Smithfield Foods,
Inc. 1998 Stock Incentive Plan is in the best interest of all shareholders and,
accordingly, recommends a vote "FOR" approval of the proposed Smithfield Foods,
Inc. 1998 Stock Incentive Plan.

PROPOSAL 3

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 2, 1999, and is submitting this matter to
the shareholders 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
Shareholders to make a statement if they desire to do so and to be available to
respond to appropriate questions that may be asked by shareholders.

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 2, 1999.

OTHER MATTERS

The Board of Directors does not know of any matter to be brought before
the Annual 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 Annual Meeting, the persons named in
the enclosed proxy will vote thereon in accordance with their best judgment.

SHAREHOLDER PROPOSALS

Proposals of shareholders intended to be presented at the Company's 1999
Annual Meeting of Shareholders 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 April 5, 1999. Any such proposal must meet the applicable
requirements of the 1934 Act and the rules and regulations thereunder.

22
<PAGE>

With respect to shareholder proposals not included in the Company's proxy
statement for the 1999 Annual Meeting, the persons named in the Board's proxy
for the 1999 Annual Meeting will be entitled to exercise the discretionary
voting power conferred by such proxy under the circumstances specified in Rule
14a-4(c) under the 1934 Act, including with respect to proposals received by
the Company after June 19, 1999.

COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED MAY 3, 1998, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, CAN BE
OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY, 200 COMMERCE
STREET, SMITHFIELD, VIRGINIA 23430, ATTENTION: AARON D. TRUB, SECRETARY.

BY ORDER OF THE BOARD OF DIRECTORS,

AARON D. TRUB
SECRETARY

August 3, 1998

23
<PAGE>

EXHIBIT A

SMITHFIELD FOODS, INC.
1998 STOCK INCENTIVE PLAN

1. PURPOSE.

The purpose of this Smithfield Foods, Inc. 1998 Stock Incentive Plan (the
"Plan"), is to further the long term stability and financial success of
Smithfield Foods, Inc. (the "Company"), by attracting and retaining key
employees through the use of stock incentives. It is believed that ownership of
Company Stock will stimulate the efforts of those employees upon whose judgment
and interests the Company is and will be largely dependent for the successful
conduct of its business. It is also believed that Incentive Awards granted to
such employees under this Plan will strengthen their desire to remain employed
with the Company and will further the identification of those employees'
interests with those of the Smithfield Foods, Inc. shareholders. The Plan is
intended to operate in compliance with the provisions of Securities and
Exchange Commission Rule 16b-3.

2. DEFINITIONS.

As used in the Plan, the following terms have the meanings indicated:

(a) "Act" means the Securities Exchange Act of 1934, as amended.

(b) "Applicable Withholding Taxes" means the aggregate amount of
federal, state and local income and payroll taxes that an Company is
required to withhold in connection with any Performance Award or any
exercise of a Nonstatutory Stock Option.

(d) "Change of Control" means the occurrence of any of the following
events:

(i) The acquisition, other than from the Company, by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934) of 20% or more of either the then outstanding
shares of Common Stock of the Company or the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors, but excluding for this purpose,
any such acquisition by the Company or any of its subsidiaries, or any
employee benefit plan (or related trust) of the Company or its
subsidiaries, or any corporation with respect to which, following such
acquisition, more than 50% of, respectively, the then outstanding shares
of Common Stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by the individuals and entities who were the
beneficial owners, respectively, of the Common Stock and voting
securities of the Company immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately prior
to such acquisition, of the then outstanding shares of Common Stock of
the Company or the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors, as the case may be; or

(ii) Individuals who, as of the date hereof, constitute the Board (as
of the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any

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<PAGE>

individual becoming a director subsequent to the date hereof whose
election or nomination for election by the Company's stockholders was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the directors of the Company (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Securities Exchange Act
of 1934); or

(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, with respect to
which the individuals and entities who were the respective beneficial
owners of the Common Stock and voting securities of the Company
immediately prior to such reorganization, merger or consolidation do
not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of Common Stock and the
combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of
the corporation resulting from such reorganization, merger or
consolidation, or a complete liquidation or dissolution of the Company
or of its sale or other disposition of all or substantially all of the
assets of the Company.

(e) "Code" means the Internal Revenue Code of 1986, as amended.

(f) "Company" means Smithfield Foods, Inc., a Virginia corporation.

(g) "Company Stock" means common stock of the Company. In the event of a
change in the capital structure of the Company (as provided in Section 14),
the shares resulting from such a change shall be deemed to be Company Stock
within the meaning of the Plan.

(h) "Committee" means the Compensation Committee of the Board or a
subcommittee of the Compensation Committee, consisting of not less than two
directors of the Company, unless the Board shall appoint another committee
(or subcommittee) to administer the Plan. If and to the extent required by
Rule 16b-3, all members of the Committee shall be non-employee directors as
defined in Rule 16b-3. If any member of the Committee fails to qualify as a
non-employee director (to the extent required by Rule 16b-3), such person
shall not take part in future Committee deliberations with respect to the
Plan.

(i) "Date of Grant" means the effective date on which an Incentive Award
is granted by the Committee.

(j) "Disability" or "Disabled" means, as to an Incentive Stock Option, a
Disability within the meaning of Code section 22(e)(3). As to all other
Incentive Awards, the Committee shall determine whether a Disability exists
and such determination shall be conclusive.

(k) "Fair Market Value" means, as of the day of the Date of Grant (or,
if there were no trades on the Date of Grant, the last preceding day on
which Company Stock was traded) (i) if the Company Stock is traded on an
exchange, the average of the highest and lowest registered sales prices of
the Company Stock at which it is traded on such date on the exchange on
which it generally has the greatest trading volume or (ii) if the Company
Stock is traded in the over-the-counter market, the last sale price on such
date as reported by The Nasdaq National Market.

(l) "Incentive Award" means, collectively, a Performance Award, or an
Option under the Plan.

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<PAGE>

(m) "Incentive Stock Option" means an Option intended to meet the
requirements of, and qualify for favorable federal income tax treatment
under, Code section 422.

(n) "Mature Shares" means shares of Company Stock for which the holder
thereof has good title, free and clear of all liens and encumbrances and
which such holder either (i) has held for at least six months or (ii) has
purchased on the open market.

(o) "Nonstatutory Stock Option" means an Option that does not meet the
requirements of Code section 422, or, even if meeting the requirements of
Code section 422, is not intended to be an Incentive Stock Option and is so
designated.

(p) "Option" means a right to purchase Company Stock granted under the
Plan, at a price determined in accordance with the Plan.

(q) "Parent" means a parent corporation of the Company within the
meaning Code section 425(e).

(r) "Participant" means any employee of the Company who receives an
Incentive Award under the Plan.

(s) "Performance Award" means an Incentive Award made pursuant to
Section 6.

(t) "Performance Criteria" means any of the following areas of
performance of the Company or a Subsidiary of the Company: asset growth;
pre-tax earnings; pre-tax profits; debt to equity ratio; earnings per
share; revenues; operating income; operating cash flow; net income, before
or after taxes; net income before income taxes, incentive payments and
accounting for minority interest; return on total capital, equity, revenue
or assets; or market value of Company Stock. All Performance Criteria shall
be calculated in accordance with generally accepted accounting principles
consistently applied by the Company.

(u) "Rule 16b-3" means Rule 16b-3 of the Securities and Exchange
Commission promulgated under the Act. A reference in the Plan to Rule 16b-3
shall include a reference to any corresponding rule (or number
redesignation) of any amendments to Rule 16b-3 enacted after the effective
date of the Plan's adoption.

(v) "Subsidiary" means a subsidiary of the Company within the meaning of
Code section 425(d).

(w) "Taxable Year" means the fiscal period used by the Company for
reporting taxes on income under the Code.

3. GENERAL.

The following types of Incentive Awards may be granted under the Plan:
Options, or Performance Awards. Options granted under the Plan may be Incentive
Stock Options or Nonstatutory Stock Options.

4. STOCK.

Subject to Section 14 of the Plan, there shall be reserved for issuance
under the Plan an aggregate of one million five hundred thousand (1,500,000)
shares of Company Stock, which shall be authorized, but unissued shares. Shares
that have not been issued under the Smithfield Foods, Inc. 1992 Stock Incentive
Plan (the "1992 Plan"), or shares allocable to Options or portions thereof
granted under the Company's 1992 Plan or this Plan that expire or otherwise
terminate unexercised may again be subjected to an Incentive Award under the
Plan.

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The Committee is expressly authorized to make an Incentive Award to a
Participant conditioned upon the surrender for cancellation of an option
granted under an existing Incentive Award, provided, however, that the
Committee is expressly prohibited from making such an Incentive Award if such
Award reduces the Option exercise price of Company Stock covered by the
existing Award or Option being surrendered. No more than three hundred thousand
(300,000) shares may be allocated to the Incentive Awards, including the
maximum amounts payable under a Performance Award, that are granted to any
Participant during any single Taxable Year.

5. ELIGIBILITY.

(a) All present and future employees of the Company (or Parent or
Subsidiary of the Company) whom the Committee determines to have contributed or
who can be expected to contribute significantly to the Company or Parent or
Subsidiary shall be eligible to receive Incentive Awards under the Plan. The
Committee shall have the power and complete discretion, as provided in Section
15, to select eligible employees to receive Incentive Awards and to determine
for each employee the nature of the award and the terms and conditions of each
Incentive Award.

(b) The grant of an Incentive Award shall not obligate the Company or any
Parent or Subsidiary to pay an employee any particular amount of remuneration,
to continue the employment of the employee after the grant or to make further
grants to the employee at any time thereafter.

6. PERFORMANCE AWARDS.

(a) Each Performance Award shall be evidenced by an agreement (an Award
Agreement) setting forth the Performance Goals for the award, including the
Performance Criteria, the target and maximum amounts payable and such other
terms and conditions as are applicable to the Performance Award. The amount
payable under a Performance Award to any Participant for a Taxable Year may not
exceed the greater of $2,000,000 or 3% of the Company's net income before
income taxes, incentive payments and accounting for minority interests for the
year for which the Performance Award is made. Each Performance Award shall be
awarded and administered to comply with the requirements of Code section
162(m). In the event of any conflict between a Award Agreement and the Plan,
the terms of the Plan shall govern.

(b) The Committee shall establish the Performance Goals for Performance
Awards to Participants. The Committee shall determine the extent to which any
Performance Criteria shall be used and weighted in determining Performance
Awards. The Committee may vary the Performance Criteria, Performance Goals and
weightings from Participant to Participant, Performance Award to Performance
Award and Plan Year to Plan Year. The Committee may increase, but not decrease,
any Performance Goal during a Plan Year.

(c) The Committee shall establish for each Performance Award the amount of
cash payable at specified levels of performance, based on the Performance Goal
for each Performance Criteria. Any Performance Award shall be granted not later
than 90 days after the start of the period for which the Performance Award
relates and shall be granted prior to the completion of 25% of such period. The
Committee will make all determinations regarding the achievement of any
Performance Goals. The Committee may not increase during a Plan Year the amount
that would otherwise be payable upon achievement of the Performance Goal or
Goals but may reduce or eliminate the payments as provided in a Performance
Award.

(d) The actual payments to a Participant under a Performance Award will be
calculated by applying the achievement of a Performance Criteria to the
Performance Goal as established in the Award Agreement. The

A-4
<PAGE>

Committee will make or review all calculations of actual payments and the
Committee shall certify in writing the extent, if any, to which the Performance
Goals have been met.

(e) Performance Awards will be paid in cash, at such time or times as are
provided in the Award Agreement. Performance Awards will be subject to
Applicable Withholding Taxes. The Committee may provide in the Award Agreement
that the Participant may make a prior election to defer the payment under a
Performance Award subject to such terms and conditions as the Committee may
determine.

(f) Nothing contained in the Plan will be deemed in any way to limit or
restrict the Company or the Committee from making any award or payment to any
person under any other plan, arrangement or understanding, whether now existing
or hereafter in effect.

(g) A Participant's interest in a Performance Award may not be sold,
assigned, transferred, pledged, hypothecated, or otherwise encumbered.

7. STOCK OPTIONS.

(a) The Committee may make grants of Options to Participants. Whenever the
Committee deems it appropriate to grant Options, notice shall be given to the
Participant stating the number of shares for which Options are granted, the
Option price per share, whether the Options are Incentive Stock Options or
Nonstatutory Stock Options, and the conditions to which the grant and exercise
of the Options are subject. This notice, when duly accepted in writing by the
Participant, shall become a stock option agreement.

(b) The exercise price of shares of Company Stock covered by an Option
shall be not less than 100% of the Fair Market Value of such shares on the Date
of Grant.

(c) Options may be exercised in whole or in part at such times as may be
specified by the Committee in the Participant's stock option agreement;
provided that, the exercise provisions for Incentive Stock Options shall in all
events not be more liberal than the following provisions:

(i) No Incentive Stock Option may be exercised after the first to occur
of (x) 10 years from the Date of Grant, (y) three months following the date
of the Participant's retirement or termination of employment with the
Company for reasons other than Disability or death, or (z) one year
following the date of the Participant's termination of employment on
account of Disability or death.

(ii) An Incentive Stock Option by its terms, shall be exercisable in any
calendar year only to the extent that the aggregate Fair Market Value
(determined at the Date of Grant) of the Company Stock with respect to
which Incentive Stock Options are exercisable for the first time during the
calendar year does not exceed $100,000 (the "Limitation Amount"). Incentive
Stock Options granted under the Plan and all other plans of any Company
shall be aggregated for purposes of determining whether the Limitation
Amount has been exceeded. The Committee granting the Option may impose such
conditions as it deems appropriate on an Incentive Stock Option to ensure
that the foregoing requirement is met. If Incentive Stock Options that
first become exercisable in a calendar year exceed the Limitation Amount,
the excess Options will be treated as Nonstatutory Stock Options to the
extent permitted by law.

(d) Unless otherwise provided in an Incentive Award, Options shall become
fully exercisable (i) upon a Change of Control or (ii) on the day immediately
preceding the Distribution Date under the Rights Agreement

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<PAGE>

dated as of September 1, 1997, as amended by Amendment No. 1 dated as of May 1,
1998, between the Company and Harris Trust and Savings Bank, as the same may be
further amended from time to time, and any successor or replacement rights
agreement. Unless otherwise provided in an Incentive Award, no option shall be
exercisable sooner than five years from the Date of Grant.

8. METHOD OF EXERCISE OF OPTIONS.

(a) Options may be exercised by the Participant giving written notice of
the exercise to the Company, stating the number of shares the Participant has
elected to purchase under the Option. The notice shall be effective if
accompanied by the exercise price in full in cash. In addition, in the terms of
an Option or by other action, the Committee may permit the Participant to (i)
deliver Mature Shares (valued at their Fair Market Value on the date of
exercise) in satisfaction of all or any part of the exercise price, or (ii)
deliver a properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Company, from the sale or
loan proceeds with respect to the sale of Company Stock or a loan secured by
Company Stock, the amount necessary to pay the exercise price. In lieu of
physical delivery of Mature Shares of Company Stock that are intended to be
delivered, the Participant may either (a) if the Company Stock is held by a
registered securities broker for Participant, provide a notarized statement
attesting to the number of shares owned, or (b) if the Company Stock is
actually held by Participant, provide a statement with certificate numbers of
the shares owned.

(b) The Company may place on any certificate representing Company Stock
issued upon the exercise of an Option any legend deemed desirable by the
Company's counsel to comply with federal or state securities laws, and the
Company may require a customary written indication of the Participant's
investment intent. Until the Participant has made any required payment,
including any Applicable Withholding Taxes, and has had issued a certificate
for the shares of Company Stock acquired, he or she shall possess no
shareholder rights with respect to the shares.

(c) Each Participant shall agree as a condition of the exercise of an
Option to pay to the Company, or make arrangements satisfactory to the Company
regarding the payment to the Company of, Applicable Withholding Taxes. Until
such amount has been paid or arrangements satisfactory to the Company have been
made, no stock certificate shall be issued upon the exercise of an Option. As
an alternative to making a cash payment to the Company to satisfy Applicable
Withholding Taxes, in addition, in the terms of an Option or by other action,
the Committee may permit the Participant to elect to (i) deliver Mature Shares
or (ii) have the Company retain that number of shares of Company Stock that
would satisfy all or a specified portion of the Applicable Withholding Taxes.

9. ELECTION TO DEFER RECEIPT OF STOCK.

(a) To the extent determined by the Committee, a Participant may elect to
defer receipt of Shares that the Participant would otherwise receive upon
exercise of a Nonstatutory Stock Option by completing a deferral election (a
"Deferral Election"). A Deferral Election must be in writing and must be
delivered to the Secretary of the Company at least six months before the Option
will be exercised. A Deferral Election shall be irrevocable in respect to the
number of shares under the Options to which it pertains. A Deferral Election
must specify the applicable number or percentage of the Shares on which the
Participant wishes to defer receipt. This Section 9 shall also apply to allow
Deferral Elections on the exercise of a Nonstatutory Stock Option issued under
the 1992 Plan.

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<PAGE>

(b) The following provisions apply with respect to all Options for which a
Deferral Election is made. The optionee must pay the exercise price of the
Options by delivery to the Company of Shares (the "Exercise Shares") in the
amount of the full Option exercise price for the Shares being acquired.
Delivery of the Exercise Shares may be made as provided in Section 8. Upon
delivery of the Exercise Shares, the Company shall issue Shares equal to the
sum of (1) the number of Shares on which the Option was exercised reduced by
the number of Exercise Shares (the "Deferred Shares"), and (2) if the
Participant surrendered the Exercise Shares, Shares equal to the number of the
Exercise Shares. The Deferred Shares shall be credited to the optionee's
account (the "Deferred Shares Account") established under a trust (the
"Deferred Shares Trust"). Any additional Shares shall be delivered to the
Participant.

(c) The Deferred Shares Trust shall secure the Company's obligation to
transfer the Deferred Shares to the Participant. The Deferred Shares Trust and
its assets shall remain subject to the claims of the Company's creditors and
any interest the Participant may be deemed to have in the Deferred Shares Trust
may not be sold, hypothecated or transferred (including, without limitation,
transfer by gift), except by will or the laws of descent and distribution. The
certificates for shares issued to the Deferred Shares Trust shall be issued in
the name of the trustee. For accounting purposes, the trustee shall maintain
records of the Deferred Shares Account for each Participant. All dividends and
other distributions paid or made with respect to the Common Stock in the
Deferred Shares Trust shall be held in the Deferred Shares Trust account. All
cash dividends or other distributions shall be invested in additional shares of
Common Stock. The Participant shall have the right to direct the trustee as to
the voting of shares of Common Stock in the Deferred Shares Account.

(d) A Deferral Election shall provide for payment of the Deferred Shares
Account at a future date or dates elected by the Participant. A Deferral
Election shall also provide the form of payment of the Deferred Shares Account.
The Committee may establish the permissible forms of payment and dates for
payment to be offered under a Deferral Election. In addition, the Participant
may elect to receive the Deferred Shares Account in a single lump sum payment
upon the occurrence of a Change of Control in lieu of any other form that would
otherwise be payable pursuant to a prior election. The single lump sum payment
shall be paid as soon as practicable after the Change of Control occurs. Except
for an election made within 30 days of the effective date of this Plan which
shall be immediately effective, any election or revocation of an election by
the Participant as to the date of payment or payment upon a Change of Control
shall be effective six months after it is made.

(e) The Committee may establish such procedures as are necessary or
appropriate to implement the provisions of this Section 9 and may delegate the
administration to one or more employees of the Company.

10. TRANSFERABILITY OF OPTIONS AND OTHER AWARDS.

Nonstatutory Stock Options may be transferable by a Participant and
exercisable by a person other than the Participant, but only to the extent
specifically provided in the Incentive Award or in other action of the
Committee. Incentive Stock Options, by their terms, and other Incentive Awards
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable, during the Participant's lifetime, only
by the Participant.

11. EFFECTIVE DATE OF THE PLAN.

The effective date of the Plan is July 1, 1998. The Plan shall be
submitted to the shareholders of the Company for approval. Until the Plan has
been approved by the Company's shareholders, no Performance Award shall be
awarded that is not contingent on these events and no Option granted shall be
exercisable.

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<PAGE>

12. TERMINATION, MODIFICATION, CHANGE.

If not sooner terminated by the Board, this Plan shall terminate at the
close of business on June 30, 2008. No Incentive Awards shall be made under the
Plan after its termination. The Board may amend or terminate the Plan in such
respects as it shall deem advisable; provided that, if and to the extent
required by the Code, no change shall be made that increases the total number
of shares of Company Stock reserved for issuance pursuant to Incentive Awards
granted under the Plan (except pursuant to Section 14), materially modifies the
requirements as to eligibility for participation in the Plan, or materially
increases the benefits accruing to Participants under the Plan, unless such
change is authorized by the shareholders of the Company. Notwithstanding the
foregoing, the Board may unilaterally amend the Plan and Incentive Awards with
respect to Participants as it deems appropriate to ensure compliance with Rule
16b-3 and to cause Incentive Stock Options to meet the requirements of the Code
and regulations thereunder. Except as provided in the preceding two sentences,
a termination or amendment of the Plan shall not, without the consent of the
Participant, adversely affect a Participant's rights under an Incentive Award
previously granted to him or her.

13. OTHER LIMITATIONS.

To the extent provided in an Incentive Award, all or part of the rights
with respect to the Incentive Award may be subject to the conditions that the
Participant not engage or have engaged (i) in fraud, dishonesty, conduct in
violation of Company policy, or any similar act at any time while an Employee;
or (ii) in activity directly or indirectly in competition with any business of
the Company or a Subsidiary, or in other conduct inimical to the best interests
of the Company or a Subsidiary, during or following the Participant's
employment with the Company or a Subsidiary. If it is determined by the
Committee or the Committee's designee, either before or after termination of
employment of a Participant, that there has been a failure of any such
condition in an Incentive Award, all Incentive Awards and all rights with
respect to all Incentive Awards granted to such Participant may be immediately
terminated and any Company Stock issued pursuant to the Awards shall be
forfeited.

14. CHANGE IN CAPITAL STRUCTURE.

(a) In the event of a stock dividend, stock split or combination of
shares, the number of shares of stock or securities of the Company to be
subject to the Plan and to Incentive Awards then outstanding or to be granted
thereunder, the maximum number of shares or securities which may be delivered
under the Plan, and the exercise price of outstanding Options shall be
automatically adjusted to account for the event. In the event of a
recapitalization or merger in which the Company is the surviving corporation or
other change in the Company's capital stock (including, but not limited to, the
creation or issuance to shareholders generally of rights, options or warrants
for the purchase of common stock or preferred stock of the Company), the number
and kind of shares of stock or securities of the Company to be subject to the
Plan and to Incentive Awards then outstanding or to be granted thereunder, the
maximum number of shares or securities which may be delivered under the Plan,
the exercise price and other relevant provisions shall be appropriately
adjusted by the Committee, whose determination shall be binding on all persons.
If the adjustment would produce fractional shares with respect to any
unexercised Option, the Committee may adjust appropriately the number of shares
covered by the Option so as to eliminate the fractional shares.

(b) If the Company is a party to a consolidation or a merger in which the
Company is not the surviving corporation, a transaction that results in the
acquisition of substantially all of the Company's outstanding stock

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<PAGE>

by a single person or entity, or a sale or transfer of substantially all of the
Company's assets, the Committee may take such actions with respect to
outstanding Incentive Awards as the Committee deems appropriate.

(c) Notwithstanding anything in the Plan to the contrary, the Committee
may take the foregoing actions without the consent of any Participant, and the
Committee's determination shall be conclusive and binding on all persons for
all purposes.

(d) If a Change of Control occurs, the Committee may take such actions
with respect to outstanding Options or Awards as the Committee deems
appropriate. These actions may include, but shall not be limited to,
accelerating the expiration date of any or all outstanding Options and Awards
and the dates on which any part of the Options and Awards may be exercised. The
effectiveness of such acceleration, and any exercise of Options and Awards
pursuant thereto with respect to shares in excess of the number of shares which
could have been exercised in the absence of such acceleration, may be
conditioned upon the consummation of the applicable Change of Control.

15. ADMINISTRATION OF THE PLAN.

The Plan shall be administered by the Committee. The Committee shall have
general authority to impose any limitation or condition upon an Incentive Award
the Committee deems appropriate to achieve the objectives of the Incentive
Award and the Plan and, without limitation and in addition to powers set forth
elsewhere in the Plan, shall have the following specific authority:

(a) The Committee shall have the power and complete discretion to
determine (i) which eligible employees shall receive Incentive Awards and the
nature of each Incentive Award, (ii) the terms and conditions of any
Performance Award, (iii) the number of shares of Company Stock to be covered by
each Incentive Award, (iv) whether Options shall be Incentive Stock Options or
Nonstatutory Stock Options, (v) the time or times when an Incentive Award shall
be granted, (vi) whether an Incentive Award shall become vested over a period
of time and when it shall be fully vested, (vii) when Options may be exercised,
(viii) whether a Disability exists, (ix) the manner in which payment will be
made upon the exercise of Options, (x) conditions relating to the length of
time before disposition of Company Stock received upon the exercise of Options
is permitted, (xi) whether to authorize a Participant (A) to use Mature Shares
to satisfy Applicable Withholding Taxes or (B) to have the Company withhold
from the shares to be issued under an Incentive Award the number of shares
necessary to satisfy Applicable Withholding Taxes, (xii) notice provisions
relating to the sale of Company Stock acquired under the Plan, and (xiii) any
additional requirements relating to Incentive Awards that the Committee deems
appropriate. The Committee shall have the power to amend the terms of
previously granted Incentive Awards that were granted by the Committee so long
as the terms as amended are consistent with the terms of the Plan and provided
that the consent of the Participant is obtained with respect to any amendment
that would be detrimental to him or her, except that such consent will not be
required if such amendment is for the purpose of complying with Rule 16b-3 or
any requirement of the Code applicable to the Incentive Award.

(b) The Committee may adopt rules and regulations for carrying out the
Plan with respect to Participants. The interpretation and construction of any
provision of the Plan by the Committee shall be final and conclusive as to any
Participant. The Committee may consult with counsel, who may be counsel to the
Company, and shall not incur any liability for any action taken in good faith
in reliance upon the advice of counsel.

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<PAGE>

(c) A majority of the members of the Committee shall constitute a quorum,
and all actions of the Committee shall be taken by a majority of the members
present. Any action may be taken by a written instrument signed by all of the
members, and any action so taken shall be fully effective as if it had been
taken at a meeting.

16. NOTICE.

All notices and other communications required or permitted to be given
under this Plan shall be in writing and shall be deemed to have been duly given
if delivered personally or mailed first class, postage prepaid, as follows: (a)
if to the Company - at the principal business address of the Company to the
attention of the Secretary; or (b) if to any Participant - at the last address
of the Participant known to the sender at the time the notice or other
communication is sent.

17. INTERPRETATION.

The terms of this Plan are subject to all present and future regulations
and rulings of the Secretary of the Treasury or his or her delegate relating to
the qualification of Incentive Stock Options under the Code. If any provision
of the Plan conflicts with any such regulation or ruling, then that provision
of the Plan shall be void and of no effect. The terms of this Plan shall be
governed by the laws of the Commonwealth of Virginia.

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SMITHFIELD FOODS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard J. Holland, Joseph W. Luter, III,
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
Shareholders of the Company to be held on August 27, 1998 or any adjournments
thereof.

<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS: [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to
(except as indicated to the contrary vote for all nominees listed below
below)
</TABLE>

<TABLE>
<S> <C> <C> <C>
Robert L. Burrus, Jr. F. J. Faison, Jr. Joel W. Greenberg George E. Hamilton, Jr.
Richard J. Holland Roger R. Kapella Lewis R. Little Joseph W. Luter, III
William H. Prestage Joseph B. Sebring Timothy A. Seely 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 SMITHFIELD FOODS, INC. 1998 STOCK INCENTIVE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN

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<S> <C>
3. PROPOSAL TO RATIFY THE SELECTION OF ARTHUR ANDERSEN LLP as the Company's independent public
accountants for the fiscal year ending May 2, 1999
[ ] FOR [ ] AGAINST [ ] ABSTAIN

4. 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 SHAREHOLDER. 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 AND 3.
The undersigned acknowledges receipt of the Notice of said Annual Meeting and of the Proxy Statement attached thereto.
Dated:______________________________, 1998
__________________________________________

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.
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