UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal year ended July 2, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITITES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-17060
WLR FOODS, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1295923
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 7000, Broadway, Virginia 22815
(Address of principal executive offices)
Registrant's telephone number, including area code
703-896-7000
Securities registered pursuant Name of each exchange on which required
to Section 12(b) of the Act:
N/A N/A
Common Stock - no par value
(Title of class)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
X Yes ___ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
X
The aggregate value of the voting stock held by non-affiliates of the
registrant as of September 30, 1994 was approximately 1,596,528.
The number of shares outstanding of registrant's common stock, no par value,
as of such date was 12,196,563 shares.
Documents Incorporated by Reference
Annual Report to Shareholders for fiscal year ended July 2, 1994 Part II
Proxy Statement for Annual Meeting of Shareholders to to
held October 29, 1994 Part III
<PAGE>
WLR FOODS, INC.
FORM 10-K CROSS REFERENCE SHEET
Item Number and Caption Incorporated by Reference To:
1. Business Not Applicable
2. Properties Not Applicable
3. Legal Proceedings Not Applicable
4. Submission of Matters to a Vote Not Applicable
of Security Holders
5. Market for Registrant's Common Annual Report (Exhibit 13.3)
Stock and Related Stockholder Matters and this 10-K at 10
6. Selected Financial Data Annual Report
(Exhibits 13.1 & 13.3)
7. Management's Discussion and Annual Report
Analysis of Financial Condition (Exhibit 13.2)
and Results of Operations
8. Financial Statements and Annual Report (Exhibit 13.3)
Supplementary Data and this 10-K at 19-22
9. Changes in and Disagreements with Not Applicable
Accountants on Accounting and
Financial Disclosure
10. Directors of the Registrant Proxy Statement
(Exhibit 22)
11. Executive Compensation Proxy Statement
(Exhibit 22)
12. Security Ownership of Certain Proxy Statement
Beneficial Owners and Management (Exhibit 22)
13. Certain Relationships and Related Proxy Statement
Transactions (Exhibit 22)
14. Exhibits, Financial Statement Not Applicable
Schedules, and Reports on Form 8-K
<PAGE>
PART I
Item 1. BUSINESS.
General
WLR Foods, Inc. (WLR Foods or the Company) is a fully-integrated poultry
processing company involved in the production, further processing
and marketing of turkey and chicken products, and the
distribution of poultry and meat products. In addition, WLR
Foods manufactures ice for retail distribution and is a provider
of public refrigerated warehousing services.
WLR Foods markets more than 250 branded, as well as private
label, commodity and value-added poultry and related products to
selected retail, food service and institutional markets,
primarily in the mid-Atlantic and northeastern regions of the
United States and, to a lesser extent, the upper Midwest and
California. WLR Foods exports to more than 40 countries, with
particular customer strength in the Far East, the Caribbean and
United States military installations.
WLR Foods is the combination of three poultry companies, Wampler
Foods, Inc., Horace W. Longacre, Inc. and Rockingham Poultry
Marketing Cooperative Incorporated, all of which had their
beginnings prior to 1945. Wampler Foods, Inc. and Horace W.
Longacre, Inc. were combined in 1985, and Rockingham Poultry
Marketing Cooperative Incorporated was acquired in 1988. Prior
to their consolidation on December 31, 1993, the Company operated
its poultry business through two major subsidiaries, Wampler-
Longacre Turkey, Inc. (Wampler-Longacre Turkey) and Wampler-
Longacre Chicken, Inc. (Wampler-Longacre Chicken).
In April 1990, the Company acquired Cassco Ice & Cold Storage,
Inc. (Cassco), a public refrigerated warehouse and ice
manufacturing and distribution business. WLR Foods also owns 65%
of May Supply Company, Inc. (May Supply), a wholesale distributor
of plumbing supplies and equipment. In May 1993, WLR Foods
acquired assets of two ice manufacturing and distribution
companies located in the greater Washington, D.C. area and in
Richmond, Virginia. These two operations have been integrated
into Cassco.
On November 27, 1992, WLR Foods acquired Round Hill Foods, Inc.
and affiliated companies (Round Hill), located in New Oxford,
Pennsylvania. Round Hill is engaged in turkey production,
processing and marketing.
On January 1, 1994, Wampler-Longacre Turkey and Wampler-Longacre
Chicken were merged into a single poultry company under the name
Wampler-Longacre, Inc. (Wampler-Longacre). As a part of this
consolidation, Round Hill was also merged into Wampler-Longacre.
<PAGE>
Poultry Production
WLR Foods controls the breeding, hatching, grow-out and
processing of its turkeys and chickens. For fiscal 1994, WLR
Foods produced approximately 386 million pounds of dressed turkey
and 517 million pounds of dressed chicken.
WLR Foods purchases breeder stock turkey eggs which it
hatches and places with growers who supply labor and housing to
produce breeder flocks. These breeder flocks produce eggs that
are taken to the company-owned turkey hatchery for incubation and
hatching into poults. In its chicken operations, WLR Foods
purchases breeder flock chicks and places them with growers who
supply labor and housing to raise the birds. The birds are then
moved to breeder farms where they begin providing eggs. When
laid, eggs are transported to company-owned hatcheries. Once
hatched, day-old poults and chicks are inspected and vaccinated
against common poultry diseases. In total, WLR Foods contracts
with 146 breeder growers who grow most of WLR Foods' turkey, and
all of WLR Foods' chicken, breeder flocks.
After hatching and vaccination, poults and chicks are
transported to one of WLR Foods' approximately 630 contract
growers located in Virginia, West Virginia, Pennsylvania and
Maryland who supply labor and housing to raise the turkeys and
chickens to maturity. WLR Foods supplies feed primarily from
company-owned feed mills and provides grower support through WLR
Foods' technicians and veterinarians.
Grow-out and breeder farms provide WLR Foods with more than
38 million square feet of growing facilities. These farms
typically are grower-owned, operate under contract with WLR
Foods, and provide facilities, utilities and labor. Contract
growers are compensated on a cost-based formula and several
incentive-based formulas. Approximately 80% of WLR Foods'
turkeys and 100% of its chickens are raised by contract growers,
with the balance grown by independent growers and company-owned
farms. WLR Foods strives to maintain good contract grower
relationships and believes the availability of contract growers
is sufficient for anticipated needs.
An important factor in the grow-out of poultry is the rate
at which poultry converts feed into body weight. The Company
purchases its primary feed ingredients on the open market. These
ingredients consist primarily of corn and soybean meal and
represent approximately 66% of WLR Foods' total cost to grow
turkeys and chickens and approximately 32% of its cost of sales
for fiscal 1994. Because the quality and composition of feed is
critical to the feed conversion rate, WLR Foods formulates and
produces a majority of its own feed at one of its three feed
mills. WLR Foods has annual feed manufacturing capacity in
excess of 1 million tons and anticipates no difficulty in meeting
the Company's feed requirements in the future.
Once the turkeys and chickens reach processing weight, they
are transported in WLR Foods' trucks to one of its six processing
plants. These plants utilize modern, highly automated equipment
to process and package the turkeys and chickens for sale or
preparation for further processing. WLR Foods further processes
bulk poultry by adding value beyond deponing and skinning, such
<PAGE>
as slicing, grinding, marinating, spicing and cooking to produce
delicatessen products, frankfurters, meat salads, ground turkey
and chicken and food service products.
Distribution, Public Refrigerated Warehousing, Ice and Other
WLR Foods' distribution business, with its warehousing and
transportation equipment, includes fresh poultry, beef, and other
meat products purchased from third parties for resale and is
conducted within a radius of approximately 75 miles of WLR Foods'
further processing facility in Franconia, Pennsylvania. In
fiscal 1994, Cassco sold 21.8 million eight-pound equivalent bags
of retail ice, making it one of the largest ice manufacturers in
the mid-Atlantic region. In addition, Cassco operates public
refrigerated warehouses at four locations. WLR Foods' protein
conversion plants convert the nonedible by-products of its
poultry processing plants into feed ingredients, with the balance
sold to pet food manufacturers.
The following table sets out sales revenues from WLR Foods'
products for the last three fiscal years.
Fiscal 1994 Fiscal 1993 Fiscal 1992
(Dollars in Millions)
Chicken, fresh and frozen $287.5 $238.2 $202.8
Turkey, fresh and frozen 171.4 123.7 90.9
Further processed 152.1 147.7 123.4
Distribution 82.4 80.0 73.7
Other 33.9 27.1 23.7
Total Net Sales $727.3 $616.7 $514.5
Competition
Poultry production requires continuous growing and
processing, with limited storage, making the poultry industry
highly competitive. WLR Foods markets its products in
competition with larger and smaller poultry companies on the
basis of price, quality and service, with WLR Foods' greatest
competition coming from four or five of the country's larger
poultry producers and processors. The pricing of poultry
products is so competitive that any company with a cost advantage
is in a favorable competitive position. Seasonal increases in
production and customer buying patterns contribute to
fluctuations in prices which are controlled more by supply and
demand than by cost of production. WLR Foods primarily markets
its products in the highly competitive northeastern section of
the United States.
In June 1994 WLR Foods was ranked as the ninth largest in
poultry processing/further processing according to Meat & Poultry
Magazine. WLR Foods was the fourth largest American turkey
producer according to Turkey World magazine's December 1993
issue. WLR Foods was cited as the 14th largest chicken producer
in the December 1993 issue of Broiler Industry magazine.
<PAGE>
Seasonality
In general, WLR Foods consistently produces and sells its
products throughout the year. Highest demand for poultry is in
May, June, July, November and December. The early summer months
have strong demand for chicken and further processed products and
November and December are high demand months for turkey products.
The highest demand for ice is during the period from mid-May to
mid-September.
Trademarks and Patents
Wampler-Longacre markets its products under the trademarks
WAMPLER LONGACRE and design, LONGACRE FAMILY and design, TRIM
FREE and chicken in heart design, MOUNTAIN MAID, SALADFEST, SALT
WATCHERS, TENDERLINGS and TURKEY WITH A TWIST, all of which are
federally registered trademarks. Wampler-Longacre also markets
under the trademark CHEF'S QUALITY, which has a pending federal
application. Wampler-Longacre markets its export and foreign
military sales under the ROCKINGHAM trademark. Products are also
sold under the GENUINE SHENVALLEY VIRGINIA POULTRY mark.
Cassco distributes its products under the federally
registered trademark CASSCO.
Wampler-Longacre holds a patent for pasteurized salads.
Government Contracts
WLR Foods' government contracts are a small segment of its
total sales, consisting of bids on particular products for
delivery at specified locations. Contracts are generally bid,
and the product is delivered, within a one- to two-month period.
These contracts include both chicken and turkey products and can
involve further processed products. WLR Foods had approximately
$0.9 million of governmental contracts outstanding as of July 2,
1994, compared to approximately $1.8 million outstanding as of
July 3, 1993.
Foreign Sales
WLR Foods' foreign sales constituted approximately 7% of its
total annual sales in fiscal 1994, compared to 6% for fiscal year
1993 and 5% for fiscal year 1992. Wampler-Longacre has a full-
time staffed foreign sales office which coordinates foreign sales
efforts on behalf of WLR Foods. Foreign sales originate from
that office and use independent brokers as needed. Sales are
made in over 40 countries.
Transportation
Transportation logistics, including the availability of
transportation equipment and the efficiency of transportation
systems, are key elements in the raising of poultry, transporting
feed to the contract growers and outside purchasers, transporting
<PAGE>
poultry to the processing plants, and transporting products to
customers. WLR Foods has contracts with two railroad companies
for the delivery of feed ingredients to WLR Foods' feedmills.
WLR Foods' primary marketing area is the northeastern,
central and eastern United States, and delivery of the Company's
products are generally made by truck. WLR Foods maintains a
fleet of refrigerated trucks and uses them, along with
refrigerated common carrier and customer-owned vehicles, to
deliver its product. Export products are loaded in refrigerated
containers and shipped overseas.
Raw Materials
WLR Foods' largest cost is for basic feed ingredients,
namely corn and soybean meal. Feed costs represented
approximately 32% of the Company's total cost of sales in fiscal
year ended July 2, 1994.
Feed grains are commodities subject to volatile price
changes caused by weather, size of harvest, transportation and
storage cost and the agricultural policies of the United States
and foreign governments. Although WLR Foods can, and sometimes
does, purchase grain in the forward markets, it cannot completely
eliminate the potential adverse effect of grain price increases.
Environmental and Other Regulatory Compliance
WLR Foods' facilities and operations are subject to the
regulatory jurisdiction of various federal agencies, including
the federal Food and Drug Administration, Department of
Agriculture, Environmental Protection Agency, Occupational Safety
and Health Administration, and corresponding state agencies in
Virginia, West Virginia and Pennsylvania.
Wampler-Longacre currently holds two environmental permits
for its Hinton turkey processing facility: an air permit which
regulates certain combustion equipment to comply with the Clean
Air Act and a water permit which regulates the treatment of
processing wastewater to comply with the Clean Water Act.
Wampler-Longacre has one environmental permit for its
Harrisonburg turkey processing facility which requires it to pre-
treat its processing wastewater to meet certain effluent
standards before discharging it into the regional sewer.
Wampler-Longacre currently has six environmental permits for its
Franconia turkey processing facility: two water permits, issued
by the Pennsylvania Department of Environmental Resources, for
the treatment of processing wastewater to comply with the Clean
Water Act, three air permits to regulate the operation of certain
combustion and incineration equipment, and one municipal waste
permit for the disposal of incinerator ash. Wampler-Longacre's
turkey processing facility in New Oxford, Pennsylvania, holds one
environmental permit (air permit) which regulates combustion
equipment. Wampler-Longacre also holds one environmental permit
(air permit) for its Harrisonburg feedmill issued primarily for
the control and abatement of dust.
<PAGE>
Wampler-Longacre holds two permits for its Timberville
chicken processing and rendering facility: a water permit to
regulate the discharge of processing wastewater and an air permit
to regulate the operation of its new protein conversion facility,
as well as certain combustion equipment. Wampler-Longacre has
one permit for its Alma/Stanley chicken processing facility: a
water permit to regulate the discharge of processing wastewater
to meet the standards of the Clean Water Act. Additionally,
there are three permits for Wampler-Longacre's chicken processing
and rendering facility in Moorefield, West Virginia: a water
permit to regulate the discharge of processing wastewater, an air
permit to regulate the operation of the company's new protein
conversion facility, and a sludge management permit regulating
the land application in West Virginia of certain wastewater
biosolids generated at the Moorefield wastewater treatment works.
Finally, Wampler-Longacre holds one environmental permit (air
permit) for its Broadway and Moorefield feedmills which were
issued primarily for the control and abatement of dust.
WLR Foods, on behalf of its Virginia chicken and turkey
processing facilities, filed for issuance of a Virginia Pollution
Abatement (VPA) permit regulating the land application in
Virginia of certain wastewater biosolids generated by the
facilities' Virginia wastewater treatment systems. The VPA
permit will replace Wampler-Longacre's No-Discharge certificate
which formerly regulated the land application of the facilities'
wastewater sludges in Virginia and will supersede an Interim
Sludge Management Plan under which Wampler-Longacre has managed
certain wastewater biosolids generated from its Virginia
facilities.
Management has taken steps to ensure that those facilities
regulated by new stormwater regulations have made the necessary
group, individual, or general permit applications in accordance
with the federal deadlines.
Management believes that all facilities and operations are
currently in compliance with environmental and regulatory
standards. Compliance has not had a materially adverse effect
upon WLR Foods' earnings or competitive position in the past, and
it is not anticipated to have a material adverse effect in the
future.
Employees
WLR Foods employed approximately 6,800 persons as of July 2,
1994, none of whom were covered by a collective bargaining
agreement.
Item 2. PROPERTIES.
WLR Foods' six poultry processing facilities and one further
processing plant are located in Virginia, West Virginia and
Pennsylvania and have a total slaughter capacity of approximately
460,000 turkeys per week and 3.1 million chickens per week. WLR
Foods owns and operates three feed mills with a production
capacity in excess of one million tons of finished feed per year;
a turkey hatchery with a production capacity of approximately
335,000 poults per week and two chicken hatcheries with a
<PAGE>
production capacity of approximately 3.2 million chicks per week;
freezer and cold storage for finished products with approximately
5.2 million cubic feet of capacity; and two protein conversion
plants with a total production capacity of 4,500 tons of raw
product weekly. The diversity, number and geographic proximity
of its processing and support facilities provide WLR Foods with
operating flexibility and enable it to alter the size and mix of
poultry processed among the various facilities, as market
conditions change.
Cassco operates public refrigerated facilities at four
locations with approximately 7.0 million cubic feet. These
facilities are located close to major food processors in the mid-
Atlantic region, as well as WLR Foods' own processing plants.
Cassco also operates six ice manufacturing facilities in Virginia
and West Virginia with a capacity of approximately 1,000 tons per
day.
From fiscal 1988 through the end of fiscal 1994, WLR Foods
has spent over $152 million (excluding capital leases) for
replacement and productivity improvements, acquisitions and
expansion of facilities and protein conversion plant
construction. WLR Foods owns virtually all of its manufacturing
and production equipment which is in good repair and is updated
periodically. Replacement parts and service for the equipment
are readily available, which allows for timely processing of the
Company's products.
Item 3. LEGAL PROCEEDINGS.
On February 6, 1994, WLR Foods filed suit in the United
States District Court for the Western District of Virginia
against Tyson Foods, Inc. (Tyson), seeking, among other things,
(1) a declaratory judgment as to the validity of the Company's
Shareholder Protection Rights Plan, and (2) a declaratory
judgment as to the constitutionality of Article 14, Virginia Code
Sections 13.1-725 et seq. (Virginia Affiliated Transactions
Statute), and Article 14.1, Virginia Code Sections 13.1-728 et
seq. (Virginia Control Share Acquisitions Statute), of the
Virginia Stock Corporation Act under the Virginia and United
States Constitutions.
In response, on February 25, 1994, Tyson, joined later by
its wholly-owned subsidiary WLR Acquisition
Corp., filed counterclaims against the Company
and all its directors, except Peter A.W. Green, seeking, among
other things, to invalidate the Company's Shareholder Protection
Rights Plan and certain severance agreements, and a declaratory
judgment that the Virginia Affiliated Transactions Statute, the
Virginia Control Share Acquisitions Statute and other Virginia
statutes, facially and as applied, are unconstitutional under the
United States Constitution.
Tyson's counterclaims also sought a declaratory judgment
that four of the Company's directors who resigned as employees of
the Company in February 1994 were not disinterested shareholders,
and therefore were ineligible to vote their shares at a Special
Meeting of the Shareholders held on May 21, 1994, and that the
Company's directors breached their fiduciary duties in taking
certain actions described in Tyson's counterclaims. Tyson filed
motions for preliminary relief as to the directors' eligibility
to vote and as to the constitutionality of the several Virginia
statutes, which motions for relief were denied by the District
Court on June 22, 1994 and August 7, 1994, respectively.
<PAGE>
Trial for any remaining issues was scheduled for September
12-15, 1994; however, those trial dates have been released. The
District Court will issue a final judgment in the litigation
based on the written record, as supplemented.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 9, 1994, Tyson Foods, Inc., through its wholly-
owned subsidiary, WLR Acquisition Corp., commenced a tender offer
to purchase all the outstanding shares of WLR Foods for $30 per
share. The Board of Directors of WLR Foods determined that the
offer was inadequate and recommended that the Company's
shareholders not tender their shares to Tyson Foods, Inc. This
position is detailed in the Company's Schedule 14d-9 filed with
the Securities and Exchange Commission on March 14, 1994, as
amended.
To further their takeover efforts, on April 14, 1994 Tyson
Foods, Inc. requested a special meeting of WLR Foods'
shareholders under the Virginia Control Share Acquisitions
Statute.
A special meeting of the Company's shareholders was held on
May 21, 1994 for the sole purpose of considering a proposal of
Tyson to grant it and its associates voting rights for shares of
the Company's stock they have acquired or may acquire in
connection with their offer to buy the Company.
On March 9, 1994, Tyson commenced an unsolicited public
tender offer to purchase all outstanding shares of the Company's
stock for $30 per share. Among the conditions of Tyson's offer
was a requirement that it receive voting rights under Virginia's
Control Share Acquisitions Statute for all shares acquired by
Tyson and its affiliates. Under the Control Share Statute, any
shares acquired in a control share acquisition or prior to a
control share acquisition and pursuant to a plan to make a
control share acquisition, have no voting rights unless voting
rights are granted by a resolution approved by a majority of
disinterested shares. A control share acquisition is the direct
or indirect acquisition (other than certain excepted acquisitions
which are not relevant here) of shares of the Company that, when
added to all other shares beneficially owned by the acquiror,
would entitle the acquiror to vote 20% or more of the Company's
shares.
At the May 21, 1994 special meeting, the Company's
shareholders defeated Tyson's proposal to grant it voting rights
for its control share acquisition. At the meeting, 3,152,830
votes were cast in favor of Tyson's proposal, and 5,977,118 votes
were cast against the proposal. There were 53,547 abstentions,
and 1,603,800 votes were either withheld or were broker non-
votes.
Tyson Foods, Inc. terminated its tender offer on August 5,
1994.
<PAGE>
Executive Officers of the Registrant
The following information is given regarding WLR Foods' executive
officers.
<TABLE>
<CAPTION>
______________________________________________________________________________
Name and Position Principal Occupation
with the Company Age During the Last Five Years
______________________________________________________________________________
<S> <C> <C>
James L. Keeler 59 Chief Executive Officer since February 1988
President
Chief Executive Officer
James L. Mason<F1> 45 General Manager and President of Wampler-Longacre
General Manager of since April 1990; previously General Manager
Wampler-Longacre of Wampler-Longacre Turkey
V. Eugene Misner 57 Vice President of Live Production since January 1994;
Vice President of previously, General Manager and President of
Longacre Wampler-Longacre Chicken since April 1990
Delbert L. Seitz 52 Chief Financial Officer since November 1989;
Treasurer, Chief
Financial Officer
John J. Broaddus 44 General Manager of Cassco since April 1990;
General Manager of Cassco previously Executive Vice President of Cassco
Henry L. Holler 65 Vice President Sales and Marketing since October Vice
President 1993; previously, Vice President of Sales for
Sales and Marketing Wampler-Longacre Chicken
Kenneth D. Marshall 59 Vice President Plant Operations since October 1993;
Vice President previously, Assistant General Manager of Wampler-
Plant Operations Longacre Turkey
Jane T. Brookshire 49 Vice President of Human Resources since October
Vice President 1993; previously, Director of Human Resources for
Human Resources WLR Foods
________________
<FN>
<F1> James L. Mason is the son of Herman D. Mason, who is Vice Chairman of the Company's Board.
</TABLE>
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
Public trading of shares of WLR Foods' common stock commenced on
May 10, 1988. The stock was included in NASDAQ as of
September 12, 1988, and was included in NASDAQ/National Market
System as of March 7, 1989. The range of high and low bid
information for the stock, as well as information regarding
dividends declared by WLR Foods, for each full quarterly period
within the two most recent fiscal years is incorporated by
reference to Note 13 to the Registrant's Consolidated Financial
Statements in the Annual Report, attached hereto as Exhibit 13.3.
As of September 27, 1994, the approximate number of shareholders
of record was 2,461.
Item 6. SELECTED FINANCIAL DATA.
Selected financial data for each of the fiscal years in the five-
year period ended July 2, 1994 is incorporated by reference to
the table entitled "Five Year Financial Highlights" in the Annual Report,
attached hereto as Exhibit 13.1. A summary of significant
accounting policies and business acquisitions and dispositions is
incorporated by reference to Notes 1 and 2 to the Registrant's
Consolidated Financial Statements in the Annual Report, attached
hereto as Exhibit 13.3.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Management's discussion and analysis of financial condition and
results of operations is incorporated by reference to that
section in the Annual Report, attached hereto as Exhibit 13.2.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item, except for the required
financial statement schedules, is incorporated by reference to
the Consolidated Financial Statements and Notes thereto into the
Annual Report, attached hereto as Exhibit 13.3. The required
financial statement schedules are included on pages 19-22 of this
report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
There were no changes in or disagreements with accountants
on accounting and financial disclosure during WLR Foods' two most
recent fiscal years or any subsequent interim period.
<PAGE>
PART III
Item 10. DIRECTORS OF THE REGISTRANT.
Information concerning WLR Foods' directors is incorporated
by reference to the Proxy Statement.
Item 11. EXECUTIVE COMPENSATION.
Information concerning executive compensation is
incorporated by reference to the Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN PERSONS.
The information required by this Item is incorporated by
reference to the Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information concerning certain relationships and related
transactions is incorporated by reference to the Proxy Statement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) Financial Statements, Schedules and Exhibits (AR designates
Annual Report)
Financial Statements Location
Consolidated Statements of Earnings - Fiscal years ended AR
July 2, 1994, July 3, 1993 and June 27, 1992
Consolidated Balance Sheets - July 2, 1994 and July 3, 1993 AR
Consolidated Statements of Shareholders' Equity - Fiscal years AR
ended July 2, 1994, July 3, 1993 and June 27, 1992
Consolidated Statements of Cash Flows - Fiscal years ended AR
July 2, 1994, July 3, 1993 and June 27, 1992
<PAGE>
Notes to Consolidated Financial Statements - Fiscal years AR
ended July 2, 1994, July 3, 1993 and June 27, 1992
Independent Auditors Report AR
Financial Statement Schedules
Independent Auditors' Report on Schedules Page 18
Schedule V - Property, Plant and Equipment Page 19
Schedule VI - Accumulated Depreciation and Amortization
of Property, Plant and Equipment Page 20
Schedule VIII - Valuation and Qualifying Accounts Page 21
Schedule X - Supplementary Income Statement Information Page 22
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter
of fiscal 1994 that ended on July 2, 1994.
(c) Exhibits
3.1 Articles of Incorporation of the Registrant
incorporated by reference to Exhibit 3 on Form 8-K
filed with the Securities and Exchange Commission on
January 31, 1992
3.2 Bylaws of the Registrant incorporated by reference to
Exhibit 3 of Form 8-K filed with the Securities and
Exchange Commission on February 15, 1994
4.1 Specimen Stock Certificate incorporated by reference to
Exhibit 4 of Form 10-K filed with the Securities and
Exchange Commission on September 27, 1990
4.2 Loan Agreement incorporated by reference to Exhibit 4.2
of Form 10-K filed with the Securities and Exchange
Commission on September 27, 1991
4.3 Floating Rate Note incorporated by reference to
Exhibit 4.3 of Form 10-K filed with the Securities and
Exchange Commission on September 27, 1991
4.4 Note Agreement incorporated by reference to Exhibit 4.4
of Form 10-K filed with the Securities and Exchange
Commission on September 27, 1991
4.5 Loan Agreement dated June 1, 1994
<PAGE>
4.6 Promissory Note dated July 20, 1994
4.7 Shareholder Protection Rights Agreement, dated as of
February 4, 1994, which includes as Exhibit A the forms
of Rights Certificate and Election to Exercise and as
Exhibit B the Form of Certificate of Designation and
Terms of the Participating Preferred Stock incorporated
by reference to Exhibit 1 of Form 8-A filed with the
Securities and Exchange Commission on September 30,
1993
10.1 Employment Agreement dated July 4, 1993 between the
Registrant and James L. Keeler (Deferred Compensation
Agreement attached thereto as Exhibit A) incorporated
by reference to Exhibit 10.6 of Form 10-K filed with
the Securities and Exchange Commission on September 30,
1993
10.2 Executive Cash Bonus Program incorporated by reference
to Exhibit 10.7 of Form 10-K filed with the Securities
and Exchange Commission on September 30, 1993
10.3 Long-Term Incentive Plan, as amended, incorporated by
reference to Exhibit 28 of Post-Effective Amendment
Number One to Form S-8 (No. 33-27037) filed with the
Securities and Exchange Commission on November 18, 1992
10.4 Amendment to Employment Agreement dated February 4,
1994 between the Registrant and James L. Keeler
incorporated by reference to Exhibit 10.2 of Form 8-K
filed with the Securities and Exchange Commission on
February 15, 1994
10.5 Amendment to Deferred Compensation Agreement dated
February 4, 1994 between the Registrant and James L.
Keeler incorporated by reference to Exhibit 10.3 of the
Form 8-K filed with the Securities and Exchange
Commission on February 15, 1994
10.6 Severance Agreement dated February 4, 1994 between the
Registrant and James L. Keeler incorporated by
reference to Form 10-Q/A filed with the Securities and
Exchange Commission on February 23, 1994
10.7 Severance Agreement dated February 4, 1994 between the
Registrant and Delbert L. Seitz incorporated by
reference to Form 10-Q/A filed with the Securities and
Exchange Commission on February 23, 1994
10.8 Severance Agreement dated February 4, 1994 between the
Registrant and James L. Mason incorporated by reference
to Form 10-Q/A filed with the Securities and Exchange
Commission on February 23, 1994
<PAGE>
10.9 Severance Agreement dated February 4, 1994 between the
Registrant and John J. Broaddus incorporated by
reference to Form 10-Q/A filed with the Securities and
Exchange Commission on February 23, 1994
10.10 Severance Agreement dated February 4, 1994 between
the Registrant and V. Eugene Misner incorporated
by reference to Form 10-Q/A filed with the
Securities and Exchange Commission on
February 23, 1994
10.11 Deferred Compensation Agreement dated February 4,
1994 between the Registrant and Charles W. Wampler, Jr.
incorporated by reference to Form 10-Q/A filed with the
Securities and Exchange Commission on February 23, 1994
10.12 Deferred Compensation Agreement dated February 4,
1994 between the Registrant and Herman D. Mason
incorporated by reference to Form 10-Q/A filed with the
Securities and Exchange Commission on February 23, 1994
10.13 Deferred Compensation Agreement dated February 4,
1994 between the Registrant and George E. Bryan
incorporated by reference to Form 10-Q/A filed with the
Securities and Exchange Commission on February 23, 1994
10.14 Deferred Compensation Agreement dated February 4,
1994 between the Registrant and William D. Wampler
incorporated by reference to Form 10-Q/A filed with the
Securities and Exchange Commission on February 23, 1994
13.1 Financial Highlights, from the Registrant's Annual
Report to Shareholders for the fiscal year ended
July 2, 1994
13.2 Management's Discussion and Analysis, from the
Registrant's Annual Report to Shareholders for the
fiscal year ended July 2, 1994
13.3 Consolidated Financial Statements and Notes to
Consolidated Financial Statements, from the
Registrant's Annual Report to Shareholders for the
fiscal year ended July 2, 1994
13.4 Independent Auditors' Report on Consolidated Financial
Statements, from the Registrant's Annual Report to
Shareholders for the fiscal year ended July 2, 1994
21 List of Subsidiaries of the Registrant
22 Excerpts from the Registrant's Proxy Statement for the
Annual Meeting of Shareholders to be held on
October 29, 1994
23 Consent of Independent Certified Public Accountants
24 Power of Attorney
27 Financial Data Schedule
<PAGE>
Schedules not included in this Item have been omitted because
they are either not applicable or the information is included in
the Consolidated Financial Statements or notes thereto.
[The remainder of this page is intentionally left blank.]
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WLR Foods, Inc.
By:__/s/ James L. Keeler______________
Its President & Chief Executive Officer
Date: September _30_, 1994
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
____/s/ James L. Keeler____________
President & Chief Executive Officer
Date: September _30_, 1994
__/s/ Delbert L. Seitz___________
Chief Financial Officer
Date: September 30, 1994
<PAGE>
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities on
September 30, 1993.
Signature Title
______________________________ Director
George E. Bryan*
______________________________ Director
Charles L. Campbell*
______________________________ Director
Stephen W. Custer*
<PAGE>
______________________________ Director
Calvin G. Germroth*
______________________________ Director
William H. Groseclose*
______________________________ Director
J. Craig Hott*
______________________________ Director
James L. Keeler
______________________________ Director
Herman D. Mason*
______________________________ Director
Charles W. Wampler, Jr.*
______________________________ Director
William D. Wampler*
______________________________ Director
Peter A.W. Green*
*By _/s/ Delbert L. Seitz______________
Delbert L. Seitz, attorney-in-fact
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Shareholders
WLR Foods, Inc.:
Under date of August 17, 1994, except Note 14 which is as of August 29, 1994,
we reported on the consolidated balance sheets of
WLR Foods, Inc. and subsidiaries as of July 2, 1994
and July 3, 1993, and the related consolidated statements of
earnings, shareholders' equity and cash flows for each of the
fiscal years in the three-year period ended July 2, 1994, as
contained in the 1994 annual report to stockholders. These
consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for
the year 1994. In connection with our audits of the
aforementioned consolidated financial statements, we also have
audited the related financial statement schedules as listed in
the accompanying index. These financial statement schedules are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Richmond, Virginia
August 17, 1994
<PAGE>
<TABLE>
WLR FOODS, INC.
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR FISCAL YEARS ENDED JULY 2, 1994, JULY 3, 1993 AND JUNE 27, 1992
(in thousands)
<CAPTION>
Balance at Balance
beginning Additions Retirements Transfers at close
of year at cost or sales and others of year
Fiscal year ended
July 2, 1994
<S> <C> <C> <C> <C> <C>
Land improvements $ 11,942 2,318 $ 14,260
Buildings and improvements 79,128 3,443 57 82,514
Machinery and equipment 133,401 8,735 752 (95) 141,289
Transportation equipment 22,363 2,735 479 91 24,710
Construction in process 2,452 3,544 4 6,000
--------- ------ ------ -------- ---------
Totals $249,286 20,775 1,288 $268,773
========= ======= ======= ========= ========
Fiscal year ended
July 3, 1993
Land improvements $ 9,466 3,054 583 5 $ 11,942
Buildings and improvements 57,485 21,633 4 14 79,128
Machinery and equipment 99,947 33,977 336 (187) 133,401
Transportation equipment 20,289 2,548 642 168 22,363
Construction in process 17,912 (15,460) 2,452
-------- -------- ---- ------ --------
Totals $205,099 45,752 1,565 $249,286
======== ========= ====== ====== ==========
Fiscal year ended
June 27, 1992
Land improvements $ 11,983 901 142 (3,276) $ 9,466
Buildings and improvements 49,819 6,080 93 1,679 57,485
Machinery and equipment 86,330 16,442 4,433 1,608 99,947
Transportation equipment 17,675 3,206 585 (7) 20,289
Construction in process 6,026 11,899 9 (4) 17,912
--------- ------ ------ ------- --------
Totals $171,833 38,528 5,262 $205,099
======== ====== ====== ======= =======
</TABLE>
<PAGE>
<TABLE>
WLR FOODS, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR FISCAL YEARS ENDED JULY 2, 1994, JULY 3, 1993 AND JUNE 27, 1992
(in thousands)
<CAPTION>
Balance at Balance
beginning Additions Retirements Transfers at close
of year at cost or sales and others of year
<S>
Fiscal year ended
July 2, 1994
<C> <C> <C> <C> <C>
Land improvements $ 3,471 417 $ 3,888
Buildings and improvements 25,769 3,866 16 18 29,637
Machinery and equipment 64,546 13,960 694 (48) 77,764
Transportation equipment 14,960 3,090 450 30 17,630
-------- ------ ----- ---- -------
Totals $108,746 21,333 1,160 $128,919
========= ====== ====== ==== ========
Fiscal year ended
July 3, 1993
Land improvements $ 3,706 327 562 $ 3,471
Buildings and improvements 22,436 3,337 4 25,769
Machinery and equipment 53,225 11,619 284 (14) 64,546
Transportation equipment 12,715 2,832 601 14 14,960
------- ------ ----- ---- --------
Totals $92,082 18,115 1,451 $108,746
======== ======= ===== ==== ========
Fiscal year ended
June 27, 1992
Land improvements $ 5,496 307 141 (1,956) $ 3,706
Buildings and improvements 19,273 2,408 93 848 22,436
Machinery and equipment 47,477 8,822 4,182 1,108 53,225
Transportation equipment 10,780 2,504 569 12,715
------- ----- ------ ----- ------
Totals $83,026 14,041 4,985 $92,082
======== ====== ====== ====== ========
</TABLE>
<PAGE>
<TABLE>
WLR FOODS, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED JULY 2, 1994, JULY 3, 1993 AND JUNE 27, 1992
(in thousands)
<CAPTION>
Description Balance at Charged to Charged to Balance at
beginning cost and other end of
of period expenses accounts period
<S> <C> <C> <C> <C>
Fiscal year ended July 2, 1994
Allowance for Doubtful Accounts $363 156 159 $360
---- --- --- ----
Total $363 156 159 $360
==== === === ====
Fiscal year ended July 3, 1993
Allowance for Doubtful Accounts $372 4 13 $363
---- ---- -- ----
Total $372 4 13 $363
==== ==== == ====
Fiscal year ended June 27, 1992
Allowance for Doubtful Accounts $472 25 125 $372
---- -- --- ----
Total $472 25 125 $372
==== == === ====
<PAGE>
WLR FOODS, INC.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FISCAL YEARS ENDED JULY 2, 1994, JULY 3, 1993 AND JUNE 27, 1992
(in thousands)
Charged to costs and expenses
-----------------------------
1994 1993 1992
Maintenance and repairs $26,175 $21,751 $17,805
There were no advertising costs, amortization of intangible
assets, taxes (other than payroll and income taxes) or royalties
in excess of 1% of net sales during these fiscal years.
</TABLE>
Exhibit 4.5
LOAN AGREEMENT
among
WLR FOODS, INC.,
FIRST UNION NATIONAL BANK OF VIRGINIA,
CORESTATES BANK, N.A.,
CRESTAR BANK,
WAMPLER-LONGACRE, INC.
and
CASSCO ICE & COLD STORAGE, INC.
Dated as of June 1, 1994
<PAGE>
TABLE OF CONTENTS
Recitals Page
ARTICLE I
Definitions and Rules of Construction
Section 1.1 Definitions . . . . . . . . . . . . . . . 1
Section 1.2. Rules of Construction . . . . . . . . . . 10
ARTICLE II
Representations
Section 2.1. Representations by Obligors . . . . . . 10
ARTICLE III
Note
Section 3.1. Sale and Purchase of Note . . . . . . . 12
Section 3.2. Conditions Precedent to Delivery of Note 13
ARTICLE IV
Loan
Section 4.1. Pro Rata Shares . . . . . . . . . . . . 13
Section 4.2. Loan . . . . . . . . . . . . . . . . . . 13
Section 4.3. Advances . . . . . . . . . . . . . . . . 14
Section 4.4. Payment of Temporary Notes . . . . . . . 14
ARTICLE V
Payments
Section 5.1. Amounts Payable . . . . . . . . . . . . 14
Section 5.2. Default in Payments . . . . . . . . . . 15
Section 5.3. Unconditional Obligations . . . . . . . 15
<PAGE>
ARTICLE VI
Special Covenants
Section 6.1. Insurance . . . . . . . . . . . . . . . . 16
Section 6.2. Cure by Banks . . . . . . . . . . . . . . 17
Section 6.3 Indemnification . . . . . . . . . . . . . 17
Section 6.4. Certificate as to No Default . . . . . . 18
Section 6.5. References to Note Ineffective after
Note Paid . . . . . . . . . . . . . . . . 18
Section 6.6. Financial Records and Statements . . . . 19
Section 6.7. Notice of Suits . . . . . . . . . . . . . 19
Section 6.8. Environmental Matters . . . . . . . . . . 19
Section 6.9. Consolidated Adjusted Net Worth . . . . . 20
Section 6.10. Fixed Charge Coverage Ratio . . . . . . . 21
Section 6.11. Funded Debt . . . . . . . . . . . . . . . 21
Section 6.12. Limitations on Liens . . . . . . . . . . 21
Section 6.13. Mergers, Consolidations and Sales of Assets 23
Section 6.14. Restricted Payments . . . . . . . . . . . 24
Section 6.15. Restricted Subsidiaries . . . . . . . . . 25
ARTICLE VII
Agency
Section 7.1. Appointment of Agent . . . . . . . . . . 25
ARTICLE VIII
Guaranty
Section 8.1. Guaranty of Obligations . . . . . . . . 26
Section 8.2. Waivers . . . . . . . . . . . . . . . . . 26
Section 8.3. Forbearance and Modifications . . . . . . 27
Section 8.4. Continuing Liability . . . . . . . . . . 27
Section 8.6. Subordination . . . . . . . . . . . . . . 28
Section 8.7. Further Guaranties . . . . . . . . . . . 28
ARTICLE IX
Events of Default and Remedies
Section 9.1. Event of Default . . . . . . . . . . . . 28
Section 9.2. Remedies on Default . . . . . . . . . . . 30
Section 9.3. No Remedy Exclusive . . . . . . . . . . . 30
<PAGE>
Section 9.4. Counsel Fees and Other Expenses . . . . . 30
Section 9.5. No Additional Waiver Implied by One Waiver 30
ARTICLE X
Prepayment
Section 10.1. Option to Prepay . . . . . . . . . . . . 31
Section 10.2. Mandatory Prepayment . . . . . . . . . . 31
ARTICLE XI
Miscellaneous
Section 11.1. Term of Agreement . . . . . . . . . . . 31
Section 11.2. Successors and Assigns . . . . . . . . . 31
Section 11.3. Jurisdiction and Venue . . . . . . . . . 32
Section 11.4. Severability . . . . . . . . . . . . . . 32
ii
Section 11.5. Applicable Law; Entire Understanding . . 32
Section 11.6. Counterparts . . . . . . . . . . . . . . 32
Section 11.7. Notices . . . . . . . . . . . . . . . . 32
Section 11.8. Other Agreements . . . . . . . . . . . . 33
EXHIBIT 1
iii
<PAGE>
THIS LOAN AGREEMENT, made as of the first day of June, 1994,
among WLR FOODS, INC., a Virginia corporation (the "Borrower"),
FIRST UNION NATIONAL BANK OF VIRGINIA, a national banking
association, CORESTATES BANK, N.A., also doing business as
Philadelphia National Bank, a national banking association, and
CRESTAR BANK, a Virginia banking corporation (collectively, the
"Banks"), and WAMPLER-LONGACRE, INC., a Virginia corporation, and
CASSCO ICE & COLD STORAGE, INC., a Virginia corporation
(collectively, the "Guarantors");
WITNESSETH:
WHEREAS, the Banks intend to make a loan, as hereinafter
described, to the Borrower; and the Borrower intends to issue and
deliver to the Banks the Note, as hereinafter defined, in order
to evidence the Borrower's obligation to repay such loan; and
WHEREAS, the Banks, the Borrower and the Guarantors desire
to set forth the terms and conditions with respect to such
financing;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Definitions and Rules of Construction
Section 1.1. Definitions. In addition to other terms
defined elsewhere in this Agreement, the following terms shall
have the following meanings in this Agreement unless the context
otherwise requires:
"Additional Dividend Amount" shall mean, as of the date of
calculation thereof, an amount equal to the dividends paid upon
the common stock of the Borrower during the two immediately
preceding (as of such date) fiscal years of the Borrower,
computed at the rate of the regular quarterly dividend then paid
by the Borrower on its outstanding common stock.
"Adjusted Net Worth" shall mean, with respect to any person
as at any date of determination thereof, the stockholder's equity
account of such person as reflected in the most recent (as of
such date) financial statements of such person, less (a)
goodwill, trade names, trademarks, service marks, patents and
such other assets which are properly classified as "intangible
assets", (b) unamortized debt discount and expenses relating to
indebtedness issued subsequent to May 1, 1991 and (c) write-ups
of assets occurring subsequent to May 1, 1991.
"Advances" shall mean the advances of the proceeds of the
Loan made pursuant to Article IV.
"Agent" shall mean First Union National Bank of Virginia, as
agent for the Banks, and any successor as such agent.
<PAGE>
"Agreement" shall mean this Loan Agreement, including any
amendments hereto.
"Authorized Representative" shall mean any person designated
to act on behalf of the Borrower by certificate signed by the
president, a vice president, the secretary or the treasurer of
Borrower and filed with the Agent.
"Banks" shall mean, collectively, FUNB, CBNA and Crestar.
"Borrower" shall mean WLR Foods, Inc., a Virginia
corporation.
"Business Day" shall mean any Monday, Tuesday, Wednesday,
Thursday or Friday other than a day on which one or more Banks
are temporarily closed.
"CBNA" shall mean Corestates Bank, N.A., also doing business
as Philadelphia National Bank, as a holder of the Note, or any
subsequent holder of the portion of the Note initially held by
Corestates Bank, N.A., also doing business as Philadelphia
National Bank.
"Capitalized Lease" shall mean any lease of property, real
or personal, the obligation for Rentals with respect to which is
required to be capitalized on a balance sheet of the lessee or
for which the amount of the asset and liability thereunder, as if
so capitalized, would be required to be disclosed in a note to
such balance sheet, in accordance with generally accepted
accounting principles.
"Capitalized Rentals" shall mean, as of the date of any
determination, the amount at which the aggregate Rentals due and
to become due under all Capitalized Leases under which the
Borrower or any Subsidiary is a lessee would be reflected as a
liability on a consolidated balance sheet of the Borrower and its
Subsidiaries.
"Closing Date" shall mean the date of the execution and
delivery of this Agreement and the Note.
"Consolidated Adjusted Capital" shall mean, as at any date
of determination thereof, the sum of the Consolidated Adjusted
Net Worth and the Consolidated Funded Debt on such date.
"Consolidated Adjusted Net Worth" shall mean, as at any date
of determination thereof, the Adjusted Net Worth of the Borrower
and its Restricted Subsidiaries on a consolidated basis.
"Consolidated Funded Debt" shall mean, as at any date of
determination, the Funded Debt of the Borrower and its Restricted
Subsidiaries outstanding on such date, consolidated in accordance
with generally accepted accounting principles, plus any Short-
Term Debt of the Borrower and its Restricted Subsidiaries which
would be included in Funded Debt pursuant to Section 6.11.
<PAGE>
"Consolidated Net Income" for any period shall mean the
gross revenues of the Borrower and its Subsidiaries for such
period, less all expenses and other proper charges (including
taxes on income), determined on a consolidated basis without
taking into account:
(a) any gains on the Disposition (other than in the
ordinary course of business) of investments or fixed or
capital assets, to the extent the aggregate gains on such
Dispositions exceed any losses from the Disposition of such
assets, and any taxes on such excluded gains and any tax
deductions or credits on account of any such excluded
losses;
(b) the proceeds of any life insurance policy on the
life of any officer, director or employee of the Borrower or
any of its Subsidiaries;
(c) net earnings and losses of any Restricted
Subsidiary accrued prior to the date it became a Restricted
Subsidiary;
(d) net earnings and losses of any corporation,
substantially all of the assets of which have been acquired
by the Borrower or any of its Subsidiaries in any manner
realized by such corporation prior to the date of such
acquisition;
(e) net earnings and losses of any corporation with
which the Borrower or a Restricted Subsidiary shall have
consolidated or which shall have merged into or with the
Borrower or a Restricted Subsidiary prior to the date of
such consolidation or merger;
(f) net earnings of any business entity (other than a
Restricted Subsidiary) in which the Borrower or any
Restricted Subsidiary has an ownership interest unless such
net earnings shall have actually been received by the
Borrower or such Restricted Subsidiary in the form of cash
distributions;
(g) any portion of the net earnings of any Restricted
Subsidiary which for any reason is unavailable for payment
of dividends to the Borrower or any other Restricted
Subsidiary;
(h) earnings resulting from any reappraisal,
revaluation or write-up of assets;
(i) any deferred or other credit representing any
excess of the equity in any corporation at the date of
acquisition thereof over the amount invested in such
corporation;
(j) any gain arising from the acquisition of any
securities of the Borrower or any Subsidiary; and
(k) any gains or losses, or other income, properly
classified as extraordinary, including in any event gains
<PAGE>
arising upon the discontinuance of operations.
"Consolidated Pre-Tax Income" shall mean for any period the
sum of (a) Consolidated Net Income for such period, plus (b) to
the extent deducted in determining Consolidated Net Income, (i)
all provisions for any federal, state or other income taxes made
by the Borrower and its Restricted Subsidiaries during such
period and (ii) Fixed Charges during such period.
"Crestar" shall mean Crestar Bank, as a holder of the Note,
or any subsequent holder of the portion of the Note initially
held by Crestar Bank.
"Disposition" shall mean a sale, lease, transfer or other
disposition.
"Event of Default" shall mean any of the events set forth in
Section 9.1.
"Excess Proceeds" shall mean the amount by which the net
proceeds, which shall include the fair market value of property
other than cash, received by the Borrower and its Restricted
Subsidiaries from the Disposition or Dispositions of all or a
Substantial Part of the assets of the Borrower and its Restricted
Subsidiaries exceed the amount which the Borrower applied in the
twelve-month period immediately following such Disposition or
Dispositions to the acquisition of, or investment in, Like
Assets.
"FUNB" shall mean First Union National Bank of Virginia, as
a holder of the Note, or any subsequent holder of the portion of
the Note initially held by First Union National Bank of Virginia.
"Financing Instruments" shall mean this Agreement and the
Note.
"Fixed Charges" shall mean for any period the sum of (a)
interest expense and amortization of debt discount and expense on
Indebtedness of the Borrower and its Restricted Subsidiaries for
such period and (b) total rental expense of the Borrower and its
Restricted Subsidiaries under all leases other than Capitalized
Leases.
"Funded Debt" of any person shall mean all Indebtedness
(excluding minority interests and deferred items but including
Capitalized Rentals) owed or guaranteed which by its terms
matures more than one year from the date of its creation or which
is renewable at the option of the obligor for more than one year
from such date, whether or not theretofore renewed; provided
that, except as provided in Section 6.11, amounts outstanding
under a revolving credit facility shall not constitute Funded
Debt.
"Guarantee Obligations" of any person shall mean, without
duplication, all obligations (other than endorsements in the
ordinary course of business of negotiable instruments for deposit
or collection and the Borrower's guarantee of any obligation of
any Restricted Subsidiary) of such person guaranteeing or in
effect guaranteeing any Indebtedness or other obligation
(including any dividend) of any other person (the "Primary
Obligor") in any manner, whether directly or indirectly,
including, without limitation, all obligations incurred through
an agreement, contingent or otherwise, by such person (a) to
purchase such Indebtedness or obligation or any property or
assets constituting security therefor, (b) to advance or supply
funds (i) for the purchase or payment of such Indebtedness or
<PAGE>
obligation, or (ii) to maintain fixed charge coverage or working
capital or other balance sheet condition or otherwise to advance
or make available funds for the purchase or payment of such
Indebtedness or obligation, or (c) to lease property or to
purchase securities or other property or services primarily for
the purpose of assuring the owner of such Indebtedness or
obligation of the ability of the Primary Obligor to make payment
of the Indebtedness or obligation, or (d) otherwise to assure the
owner of the Indebtedness or obligation of the Primary Obligor
against loss in respect thereof. For the computations made under
this Agreement, a Guarantee Obligation in respect of any
Indebtedness for borrowed money shall be deemed to be
Indebtedness equal to the principal amount of such Indebtedness
for borrowed money which has been guaranteed, and a Guarantee
Obligation in respect of any other obligation or liability or any
dividend shall be deemed to be Indebtedness equal to the maximum
aggregate amount of such obligation, liability or dividend.
"Guarantors" shall mean, collectively, Wampler-Longacre,
Inc. and Cassco Ice & Cold Storage, Inc., both of which are
Virginia corporations.
"Guaranty" shall mean the guaranty by the Guarantors
provided for in Article VIII.
"Indebtedness" of any person shall mean and include all
obligations of such person which should be classified upon a
balance sheet of such person as liabilities of such person, and
shall include all (a) obligations of such person for borrowed
money or which has been incurred in connection with the
acquisition of property or assets, (b) obligations secured by any
Lien on property or assets owned by such person, even though such
person has not assumed or become liable for the payment of such
obligations, (c) obligations created or arising under any
conditional sale or other title retention agreement with respect
to property acquired by such person, notwithstanding the fact
that the rights and remedies of the seller, lender or lessor
under such agreement in the event of default are limited to
repossession or sale of property, (d) Guarantee Obligations, (e)
Capitalized Rentals under any Capitalized Lease and (f) any
recourse obligations arising upon a sale of assets. Any
Indebtedness extended or renewed other than at the option of the
obligor pursuant to the terms thereof, will be deemed to have
been incurred at the time of such extension or renewal.
"Intercreditor Agreement" shall mean the Intercreditor
Agreement of even date herewith among the Banks and the Agent.
"Investments" shall mean all investments made, in cash or by
delivery of property, directly or indirectly, in any person,
whether by acquisition of shares of capital stock, indebtedness
or other obligations or securities or by loan, advance, capital
contribution or otherwise; provided that Investments shall not
include routine investments in property to be used or consumed in
the ordinary course of business.
"Land" shall mean all land now or hereafter owned by the
Borrower.
<PAGE>
"Lien" shall mean any mortgage, deed of trust, pledge,
security interest, encumbrance, lien or charge of any kind, or
conditional sales agreement or other arrangement for the
retention of title (including any Capitalized Lease), on any real
or personal property.
"Like Assets" shall mean any capital assets used or to be
used by the Borrower or any of its Restricted Subsidiaries in the
lines of business conducted by the Borrower and its Restricted
Subsidiaries during the most recent fiscal year of the Borrower
which ended prior to the Closing Date and businesses related
thereto.
"Loan" shall mean a loan in the maximum amount of
$25,000,000 made by the Banks to the Borrower as provided for in
this Agreement.
"Note" shall mean the promissory note issued by the Borrower
to evidence its obligation to repay the Loan in a maximum
principal amount of $25,000,000.
"Obligors" shall mean, collectively, the Borrower and the
Guarantors.
"Payment of the Note" shall mean payment in full of the Note
and the making in full of all other Required Payments due and
payable at the time of such payment.
"Prime Rate" shall mean the rate of interest established by
First Union National Bank of Virginia from time to time as its
prime rate, with the effective date of any change in the Prime
Rate being the effective date of the applicable change in the
prime rate so established. The Prime Rate is not the lowest or
most favorable rate of interest charged by First Union National
Bank to its customers.
"Pro Rata" shall mean in proportion to the Banks' Pro Rata
Shares.
"Pro Rata Share" shall mean, for each Bank, the percentage
specified for such Bank in Section 4.1.
"Qualified Investments" shall mean any and all of the
following Investments of the Borrower and its Restricted
Subsidiaries:
(a) Investment in Restricted Subsidiaries or entities
which contemporaneously become Restricted Subsidiaries.
(b) Investments in direct obligations of the United
States of America, or obligations of any instrumentality or
agency thereof maturing one year or less after acquisition
the payment of the principal and interest of which is
unconditionally guaranteed by the United States of America.
(c) Investments in repurchase agreements and
certificates of deposit due within twelve months from the
<PAGE>
date of acquisition thereof issued by any bank or trust
company located within the United States of America,
organized under its laws or the laws of any state thereof
and having total assets of at least $500,000,000.
(d) Investments in commercial paper of any corporation
maturing within 270 days of acquisition and rated either
"prime-1" or higher by Moody's Investors' Services, Inc. or
"A-1" or higher by Standard & Poor's Rating Group, or other
comparable rating if such rating systems are changed.
(e) Investments acquired solely in exchange for
capital stock of the Borrower.
"Rentals" shall mean and include all rents (including as
such all payments which the lessee is obligated to make to the
lessor on termination of the lease or surrender of the property)
payable by the Borrower or a Restricted Subsidiary, as lessee or
sublessee under a lease of real or personal property, but shall
be exclusive of any amounts required to be paid by the Borrower
or a Subsidiary (whether or not designated as rents or additional
rents) on account of maintenance, repairs, insurance, taxes, and
similar charges.
"Request for Borrowing" shall mean the written notice given
by an Authorized Representative to the Agent pursuant to
Section 4.2.
"Required Payment" shall mean any payment of money required
under the terms of the Financing Instruments to be made by the
Obligors.
"Restricted Subsidiary" shall mean each Guarantor, May
Supply Company, Inc., Rockingham Poultry, Inc., a Virginia
corporation, Rockingham Poultry, Inc., a Virgin Islands
corporation, and any Subsidiary (a) organized under the laws of
the United States of America, the Commonwealth of Puerto Rico or
Canada or a jurisdiction thereof, (b) which conducts
substantially all of its business and has substantially all of
its property within the United States of America, the
Commonwealth of Puerto Rico and/or Canada, (c) at least 80% of
the ownership interest of which is owned by the Borrower or a
Wholly-Owned Restricted Subsidiary, and (d) which has been
designated a Restricted Subsidiary by the Board of Directors of
the Borrower, but only if such designation does not result in an
Event of Default or an event or condition which, with the giving
of notice or the lapse of time or both, would constitute an Event
of Default. Any Subsidiary which has been so designated for
purposes of the Senior Note Agreement shall be deemed to have
been so designated for purposes of this Agreement.
"Security" shall mean any funds, agreements, property,
rights or interests of any nature whatsoever, guaranties of and
any subordination and/or standby agreements related to the
Obligations (as defined in Section 8.1) which have been or
hereafter are mortgaged, pledged, assigned, transferred, executed
or delivered, directly or indirectly, to the Agent or any Bank as
security for or guaranty of the payment or performance of any
Obligation.
"Senior Note Agreement" shall mean the Note Agreement dated
as of May 1, 1991 among the Borrower and the purchasers of the
9.41% Senior Notes described therein.
<PAGE>
"Short-term Debt" of any person shall mean all Indebtedness
of such person for borrowing money or which has been incurred in
connection with the acquisition of assets, other than any such
Indebtedness which constitutes Funded Debt, but, in any event,
including any amounts outstanding under a revolving credit
facility.
"Subsidiary" shall mean a subsidiary of the Borrower, for
which purpose "subsidiary" shall mean, as to any particular
parent corporation, any corporation of which more than 50% (by
number of votes) of the Voting Stock shall be owned or controlled
by such parent corporation and/or one or more corporations which
are themselves subsidiaries of such parent corporation.
"Substantial Part" shall mean assets of the Borrower or any
Restricted Subsidiary, including the common stock of any
Subsidiary, which in the aggregate contributed more than 15% of
the sum of (a) operating income, as set forth in the Borrower's
consolidated income statements for the twelve-month period ending
as of the last day of the most recently ended quarter for which
financial statements are required to be delivered pursuant to
Section 6.6, and (b) depreciation and amortization for such
period to the extent deducted in determining operating income, in
each case of the Borrower and its Restricted Subsidiaries on a
consolidated basis.
"Temporary Notes" shall mean, collectively, the three
promissory notes of the Borrower dated May 24, 1994, one of which
is payable to each Bank.
"Unrestricted Subsidiary" shall mean any Subsidiary which is
not a Restricted Subsidiary.
"Voting Stock" shall mean the capital stock of any class or
classes of a corporation, the holders of which are ordinarily, in
the absence of contingencies, entitled to vote for the election
of the members of the board of directors of such corporation, or
persons performing similar functions (irrespective of whether or
not at the time stock of any class shall have or might have
special voting power or rights by reason of the happening of any
contingency). Reference to a percentage of Voting Stock shall
mean a percentage of the votes represented by such Voting Stock
and not to the number of shares if there are classes of Voting
Stock possessing different voting rights.
"Wholly-owned", when used in connection with any Restricted
Subsidiary, shall mean a Restricted Subsidiary of which all of
the issued and outstanding shares of stock (except shares
required as directors' qualifying shares) and all Indebtedness
for borrowed money shall be owned by the Borrower and/or one or
more of the Wholly-Owned Restricted Subsidiaries.
Section 1.2. Rules of Construction. The following rules
shall apply to the construction of the Financing Instruments
unless the context otherwise requires:
(a) Words importing the singular number shall include
the plural number and vice versa, and any gender shall connote
another gender.
<PAGE>
(b) All references in a Financing Instrument to
particular articles or sections are references to articles or
sections of such Financing Instruments unless otherwise
indicated.
(c) The headings and Table of Contents in any
Financing Instrument are solely for convenience of reference and
shall not constitute a part of such Financing Instrument, nor
shall they affect its meaning, construction or effect.
(d) Words importing the prepayment or calling for
prepayment of the Note shall not be deemed to refer to or connote
the payment of the Note at its stated maturity.
(e) All accounting terms used in any Financing
Instrument which are not expressly defined therein shall have the
meanings respectively given to them in accordance with generally
accepted accounting principles applicable to entities of the same
character as the Borrower. All financial computations made
pursuant to any Financing Instrument shall be made in accordance
with generally accepted accounting principles applicable to
entities of the same character as the Borrower consistently
applied, and all balance sheets and other financial statements
shall be prepared in accordance with generally accepted
accounting principles applicable to entities of the same
character as the Borrower consistently applied.
ARTICLE II
Representations
Section 2.1. Representations by Obligors. Each Obligor
makes the following representations as the basis for its
undertakings hereunder:
(a) Such Obligor is a stock corporation duly organized
under the laws of Virginia and is in good standing therein, has
the power and authority to own its properties and to enter into
the Financing Instruments to which it is a party and the
transactions contemplated thereby and to perform its obligations
thereunder, and by proper corporate action has duly authorized
the execution and delivery of such Financing Instruments. Such
Obligor is qualified to do business in each state in which it is
now doing business.
(b) Other than litigation with Tyson Foods, Inc. which
has previously been disclosed to the Banks, no litigation at law
or in equity or any proceeding before any governmental agency
involving such Obligor is pending or, to the knowledge of such
Obligor, threatened in which any liability of such Obligor is not
adequately covered by insurance or in which any judgment or order
would have a material adverse effect upon the business or assets
of such Obligor or that would affect its authority to do
business, the validity of the Financing Instruments to which such
Obligor is a party or the performance of its obligations
thereunder.
(c) The execution and delivery of, and compliance by
such Obligor with the terms and conditions of, the Financing
<PAGE>
Instruments to which it is a party will not constitute or result
in a default under or violation of (i) such Obligor's articles of
incorporation or bylaws, (ii) any agreement or other instrument
to which such Obligor is a party or by which it or its property
is bound, or (iii) any constitutional or statutory provision or
order, rule, regulation, decree or ordinance of any court,
government or governmental authority having jurisdiction over
such Obligor or its property.
(d) Such Obligor has obtained all consents, approvals,
authorizations and orders of any governmental or regulatory
authority that are required to be obtained by such Obligor as a
condition precedent to the issuance of the Note, the execution
and delivery of the Financing Instruments to which such Obligor
is a party, or the performance by such Obligor of its obligations
thereunder.
(e) No Event of Default has occurred and is
continuing, and no event has occurred and is continuing which,
with notice or lapse of time or both, would constitute an Event
of Default.
(f) All of the Financing Instruments to which such
Obligor is a party have been duly authorized by such Obligor and,
assuming due execution and delivery of the Financing Instruments
by the other parties thereto, are valid, enforceable and binding
obligations of such Obligor; provided that (i) the obligations of
such Obligor under such Financing Instruments are subject to
usual principles of equity and to applicable bankruptcy,
insolvency, reorganization and similar laws affecting creditors'
rights generally, and (ii) the enforceability of the indemnity
provisions herein may be limited by applicable securities laws
and public policy.
ARTICLE III
Note
Section 3.1. Sale and Purchase of Note. The Borrower
shall issue and sell the Note to the Banks.
Each Bank represents that it is purchasing its Pro Rata
Share of the Note for its own account for investment and has no
present intention of reselling or disposing of such Pro Rata
Share or engaging in any "distribution" thereof (as that term is
used in the Securities Act of 1933, as amended, and the
regulations of the Securities and Exchange Commission
thereunder). Each Bank represents that it is familiar with the
operations and financial condition of the Obligors based upon
information furnished to such Bank by the Obligors and has made
such inquiries as it deems appropriate in connection with the
purchase of such Pro Rata Share.
No Bank shall assign or offer any portion of the Note, or
any participation therein, for sale in any state of the United
States without first (a) either (i) taking all necessary action
to qualify such portion for offer and sale under the securities
and "Blue Sky" laws of the United States and such state or (ii)
determining that no such action is necessary because of a
<PAGE>
registration exemption or exemptions, and (b) providing to the
purchaser of such portion, or any participant therein, all
material information in such Bank's possession necessary to
evaluate the risks and merits of the investment represented by
the purchase of or participation in such portion.
The Obligors represent that no Financing Instrument nor any
information (financial or otherwise) furnished by or on behalf of
the Obligors in connection with the negotiation or the sale of
the Note contains any untrue statement of a material fact or
omits (when considered together with all information furnished) a
material fact necessary to make the statements contained therein,
in the light of the circumstances in which they were made, not
misleading. There is no fact that the Obligors have not
disclosed in writing to each Bank that materially affects
adversely or, so far as the Obligors can now foresee, based on
facts known to them, will have a material adverse effect on the
properties, business, prospects, profits or condition (financial
or otherwise) of any Obligor or the ability of any Obligor to
perform its obligations under the Financing Instruments.
Section 3.2. Conditions Precedent to Delivery of Note.
The Agent shall be required to accept delivery of the Note, on
behalf of the Banks, only upon delivery to it, in form and
substance satisfactory to it, of the following:
(a) Executed copies of the Financing Instruments.
(b) The certificates or policies of insurance required
by Section 8.3.
(c) Evidence of the due authorization, execution and
delivery of the Financing Instruments by the parties thereto.
(d) The Banks' commitment fee of $100,000, which shall
be shared Pro Rata by the Banks.
(e) Certified copies of (i) the resolutions of the
Obligors' boards of directors authorizing execution and delivery
of the Financing Instruments, (ii) the articles of incorporation
of each Obligor, and (iii) the bylaws of each Obligor.
(f) Evidence satisfactory to the Agent that no
Hazardous Substances (as defined in Section 6.8) are located on,
in or under the Land.
(g) An opinion of counsel for the Obligors.
(h) Such other documentation, certificates and
opinions as may be reasonably required by the Agent or any Bank.
<PAGE>
ARTICLE IV
Loan
Section 4.1. Pro Rata Shares. the Pro Rata Share for each
Bank shall be as follows: (a) for FUNB, 40%, (b) for CBNA, 40%,
and (c) for Crestar, 20%.
Section 4.2. Loan. The Banks shall make the Loan by
making Advances to the Borrower in such amounts as may be
requested from time to time by an Authorized Representative in a
Request for Borrowing; provided that the aggregate amount of
Advances made under the Loan shall not exceed the maximum
principal amount of the Note; and provided further that no
Advance shall be in an amount of less than $1,000,000. Each
Request for Borrowing shall be in the form of Exhibit 1 hereto
and shall be delivered to the Agent not later than 10:00 a.m. on
the Business Day preceding the Business Day on which the Advance
requested thereby is to be made.
Section 4.3. Advances. An Advance shall be made by one or
more checks or wire transfers paid to such person as may be
specified in the applicable Request for Borrowing. Each Bank
shall pay, or cause the Agent to pay on its behalf, its Pro Rata
Share of each Advance. No Bank shall be required to pay, as its
portion of the Advances, an aggregate amount exceeding its Pro
Rata share of the maximum principal amount of the Note.
The Banks shall be not required to make any requested
Advance until the Agent shall have received all of the items
specified in Section 3.2, even if the Agent shall have accepted
delivery of the Note, or the Banks shall have made any earlier
Advance, without having received all of such items. The Banks
also shall not be required to make any requested Advance at any
time that an event has occurred and is continuing which
constitutes or, with notice or lapse of time or both, would
constitute an Event of Default.
No Advance shall be made more than three months after the
Closing Date or after the date on which the Note is payable in
full.
Section 4.4. Payment of Temporary Notes. So long as any
principal of the Temporary Notes remains unpaid, the Borrower
shall apply the amount of each Advance to the payment of such
principal, and the Agent may cause any Advance to be so applied
rather than paying the amount thereof to the person indicated in
the applicable Request for Borrowing. If the principal of the
Temporary Notes shall not have been paid in full before July 24,
1994, an Authorized Representative shall be deemed to have
submitted a Request for Borrowing for an Advance to be made on
such date in an amount equal to the outstanding principal balance
of the Temporary Notes, and the Agent shall cause the amount of
such Advance to be applied to the payment of such principal
balance.
<PAGE>
ARTICLE V
Payments
Section 5.1. Amounts Payable. (a) The Borrower shall
make all payments required under the Note, as and when the same
become due (whether at maturity, by acceleration or otherwise),
in the manner set forth in the Note and shall make all other
Required Payments in the manner set forth in the applicable
Financing Instruments. Payments to the Agent shall be made in
lawful money of the United States of America at the address of
the Agent set forth in Section 11.7 or at such other place as the
Agent may direct in writing. Any amount at any time paid to the
Agent as a payment of principal of or interest on the Note as the
same become due shall be credited against the Borrower's
obligations hereunder as of the date such obligations are due
(but subject to collection of any instrument, draft, check or
order for payment received by the Agent).
(b) The Borrower shall pay (i) the reasonable fees and
expenses of the Banks, the Agent and counsel to the Banks and the
Agent and all other costs, fees and expenses incidental to the
financing hereunder, the issuance of the Note and the costs of
producing the Financing Instruments, (ii) all taxes of any kind
whatsoever lawfully assessed, levied or imposed with respect to
the transactions contemplated by this Agreement, and (iii) all
costs of collection (including reasonable counsel fees) in the
event of a default in the payment of the principal of or interest
on the Note or other charges payable under this Agreement. The
obligations of the Borrower under this subsection shall survive
Payment of the Note.
Section 5.2. Default in Payments. If the Borrower should
fail to make any Required Payment of principal of and/or interest
on the Note by the date which is seven days after the due date
for such Required Payment, the Borrower shall pay the Banks, on a
Pro Rata basis, a late charge in an amount equal to the lesser of
(a) 5% of the amount of such Required Payment or (b) $1,200. If
the Borrower should fail to make any other Required Payment when
due, the Borrower shall, to the extent permitted by law, pay
interest thereon at the Prime Rate plus 0.5%.
Section 5.3. Unconditional Obligations. The obligations
of the Obligors to make Required Payments and to perform and
observe all other covenants, conditions and agreements hereunder
shall be general obligations of the Obligors and shall be
absolute and unconditional, irrespective of any defense or any
rights of setoff, recoupment or counterclaim any Obligor might
otherwise have against the Agent or any Bank. Nothing in this
section shall be construed as a waiver by the Obligors of any
rights or claims any of them may have against the Agent or any
Bank under this Agreement or otherwise, but any recovery upon
such rights and claims shall be had from the Agent or such Bank,
as the case may be, separately. Subject to Section 10.1, the
Obligors shall not suspend or discontinue any such payment
hereunder or fail to observe and perform any of their other
covenants, conditions and agreements under the Financing
Instruments for any cause, including without limitation any acts
or circumstances that may constitute failure of consideration, or
commercial frustration of purpose, or any change in the tax or
<PAGE>
other laws of the United States of America, the Commonwealth of
Virginia or any political subdivision of either, or any failure
of the Agent or the Banks to observe and perform any covenant,
condition or agreement, whether express or implied, or any duty,
liability or obligation contained in or arising out of or in
connection with any Financing Instrument.
ARTICLE VI
Special Covenants
Section 6.1. Insurance. The Obligors shall continuously
maintain, or cause to be maintained, insurance against such risks
as are customarily insured against by businesses or owners of
like size and character, paying as the same become due all
premiums in respect thereto, including without limitation:
(a) Insurance to the extent of $1,000,000 single limit
against liability for bodily injury, including death resulting
therefrom, and damage to property, including loss of use thereof,
arising out of the ownership, maintenance or use of any of the
Obligors' properties.
(b) Workers' compensation insurance with respect to
all employees of each Obligor, unless such Obligor qualifies as a
self-insurer under the laws of each state in which it has
employees.
(c) Such other insurance as the Agent or any Bank may
reasonably require.
All such insurance shall be taken out and maintained with
generally recognized responsible insurance companies qualified to
do business in the applicable states and having ratings from A.
M. Best & Co. of A or higher, which insurance companies are
selected by the Borrower and acceptable to the Agent and may be
written with deductible amounts comparable to those on similar
policies carried by other businesses of like size and character.
All such policies shall be deposited with the Agent; provided
that in lieu of such policies there may be delivered to the Agent
a certificate or certificates of the respective insurers
attesting the fact that the required insurance is in force and
effect. Prior to the expiration of any such policy the Borrower
shall furnish the Agent evidence satisfactory to the Agent that
the policy has been renewed or replaced or is no longer required
by this Agreement.
In lieu of separate policies the Obligors may maintain
blanket or umbrella policies if such policies provide the same
coverage required above with protection against each risk not
reducible by claims for other risks to amounts less than that
specified above and the Borrower deposits with the Agent a
certificate or certificates of the respective insurers evidencing
such coverage.
Each policy required by this section shall contain an
undertaking by the insurer (if such shall be available at
reasonable cost) that such policy shall not be modified adversely
to the interests of the Banks or canceled without at least 30
days' prior written notice to the Agent.
<PAGE>
Section 6.2. Cure by Banks. If any obligor shall fail to
make any payment or perform any act required of it hereunder, the
Agent or any Bank, without prior notice to or demand upon the
Obligors and without releasing any obligation or waiving any
default, may (but shall be under no obligation to) make such
payment or perform such act. All amounts so paid by the Agent or
any Bank and all costs, fees and expenses so incurred, including
reasonable counsel fees, shall be immediately due and payable by
the Borrower as an additional obligation under this Agreement,
together with interest thereon at the Prime Rate plus 0.5%, to
the extent permitted by law.
Section 6.3. Indemnification. (a) The Borrower shall
protect, indemnify and save harmless the Banks, the Agent and any
persons who "controls" (within the meaning of Section 15 of the
Securities Act of 1933, as amended, or Section 20(a) of the
Securities Exchange Act of 1934, as amended) any Bank or the
Agent (collectively, the "Indemnified Parties") from and against
all liabilities, obligations, claims, damages, penalties, causes
of action, costs and expenses (including, without limitation,
attorneys' fees and expenses and settlement amounts) imposed upon
or incurred by or asserted against any Indemnified Party on
account of or related to (i) any failure of the Obligors to
comply with any of the terms, warranties, covenants or
representations in the Financing Instruments, or (ii) any loss or
damage to property or any injury to or death of any person that
may be occasioned by any cause whatsoever pertaining to any
property of the Obligors or the use thereof; provided that such
indemnity shall be effective only to the extent of any loss that
may be sustained by an Indemnified Party in excess of the
proceeds received by it from any insurance carried with respect
to such loss and provided further that benefits of this section
shall not inure to any person other than the Indemnified
Parties. Nothing contained herein shall require the Borrower to
indemnify any Indemnified Party for any claim or liability
resulting from its negligence or willful, wrongful acts.
(b) The Borrower shall also indemnify and hold harmless the
Indemnified Parties against any and all losses, claims, damages,
or liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in information submitted
by any Obligor to any Bank with respect to the issuance and
purchase of the Note or caused by any omission or alleged
omission of any material fact necessary to be stated therein in
order to make such statements to such Bank not misleading or
incomplete.
(c) If any action is brought against any Indemnified Party
in respect of which indemnity may be sought from the Borrower
under subsection (a) or (b) above, such Indemnified Party shall
promptly notify the Borrower in writing, and the Borrower shall
assume the defense thereof, including the employment of counsel,
the payment of all expenses and the right to negotiate and
consent to settlement. Each Indemnified Party has the right to
employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel
will be at the expense of such Indemnified Party unless the
employment of such counsel has been specifically authorized by
<PAGE>
the Borrower. The Borrower will not be liable for any settlement
of any such action made without its consent, but if such action
is settled with the consent of the Borrower or if there be a
final judgment for the plaintiff in such action, the Borrower
shall indemnify and hold harmless the Indemnified Parties from
and against any loss or liability by reason of such settlement or
judgment.
(d) The obligations of the Borrower under this section
shall survive Payment of the Note. All references in this
section to any Indemnified Party shall include its directors,
officers, employees and agents.
Section 6.4. Certificate as to No Default. The Borrower
shall deliver to the Agent concurrently with the delivery of each
of the audited financial statements of the Borrower provided for
in Section 6.6 a certificate signed by the president, a vice
president or the treasurer of the Borrower stating that, during
the period covered by such financial statements and as of the
date of such certificate, no event or condition has occurred or
existed, or is occurring or existing, that constitutes or that,
with notice or lapse of time or both, would constitute an Event
of Default, or if such an event or condition has occurred or
existed, or is occurring or existing, specifying the nature and
period of such event or condition and what action the Obligors
have taken, are taking or propose to take with respect thereto.
Each Obligor shall promptly notify the Agent at any time such
Obligor becomes aware of any event or condition described in the
preceding sentence.
Section 6.5. References to Note Ineffective after Note
Paid. Upon Payment of the Note, all references in this Agreement
to the Note shall be ineffective, and the Agent and the Banks
shall thereafter have no rights hereunder, except as explicitly
provided herein.
Section 6.6. Financial Records and Statements. The
Obligors shall maintain proper books of record and account, in
which full and correct entries shall be made, in accordance with
generally accepted accounting principles applicable to entities
of the same character as the Obligors, of all their business and
affairs. Each Obligor, within 120 days after the end of each of
its fiscal years, shall furnish the Agent copies of the balance
sheet of such Obligor as of the end of such fiscal year and
statement of income of such Obligor for such fiscal year, all in
reasonable detail and including supporting schedules. All
financial statements referred to in the preceding sentence shall
be accompanied by an unqualified opinion, or other opinion
satisfactory to the Agent, with respect thereto rendered by
independent certified public accountants. Each Obligor, within
60 days after the end of each quarter of each of its fiscal
years, shall furnish the Agent copies of the unaudited balance
sheet of such Obligor as of the end of such quarter and unaudited
statement of income of such Obligor for such quarter, all in
reasonable detail and including supporting schedules. All
financial statements referred to in the preceding sentence shall
be certified by such Obligor. Each Obligor shall furnish the
Agent such additional unaudited financial statements of such
Obligor as the Agent may reasonably request. Any financial
statements of any Obligor required by this section may be
prepared on a consolidated basis so long as the parent
corporation for the consolidated corporations to which such
statements relate is an Obligor and all subsidiaries reflected
therein are wholly-owned subsidiaries or Restricted Subsidiaries.
<PAGE>
Section 6.7. Notice of Suits. The Obligors shall notify
the Agent as soon as any obligor has knowledge thereof of any
actions, suits or proceedings at law, in equity or before or by
any governmental authority, pending or threatened, involving the
validity or enforceability of any of the Financing Instruments or
which involves an alleged or potential liability of any Obligor
exceeding $5,000,000.
Section 6.8. Environmental Matters. (a) The Borrower
warrants and represents that (i) the Land is now and at all times
will be in full compliance with all federal, state and local
environmental laws and regulations, including, without
limitation, the Comprehensive Environmental Response,
Compensation and Liability Act and the Superfund Amendments and
Reauthorization Act of 1986, (ii) to the best knowledge of the
Borrower, as of the date hereof there are no hazardous materials,
substances or wastes or other environmentally regulated
substances, including, without limitation, any materials
containing asbestos (collectively, "Hazardous Substances")
located on, in or under the Land or used in connection therewith,
other than any Hazardous Substances (A) which the Borrower is
legally authorized to maintain in, on or under the Land or use in
connection therewith, and (B) the existence, extent and nature of
which has been disclosed to the Agent in writing by the Borrower,
(iii) the Borrower has obtained and will maintain all licenses,
permits and approvals conferring such legal authorization and is
in full compliance with all of the terms, conditions and
requirements of such licenses, permits and approvals, and (iv)
the Borrower has not received any citation, order, notice or
other material governmental or other communication with respect
to any Hazardous Substances regarding the Land, nor, to the best
knowledge of the Borrower, has any such citation, order, notice
or other communication been received by any previous owner or
operator of the Land.
(b) The Borrower shall promptly notify the Agent of any
change in the existence, extent or nature of any Hazardous
Substances located on, in or under the Land or used in connection
therewith. The Borrower shall promptly (i) transmit to the Agent
copies of any citations, orders, notices or other material
governmental or other communications received by the Borrower
with respect to any Hazardous Substances, and (ii) advise the
Agent of any enforcement actions taken by local, state or federal
governmental agencies, or claims by other parties, relating to
any Hazardous Substances affecting the Land.
(c) The Borrower shall indemnify the Agent and each Bank
and hold them harmless from and against any and all damages,
penalties, fines, claims, liens, suits, liabilities, costs
(including cleanup costs), judgments and expenses (including
attorneys', consultants' or experts' fees and expenses) of every
kind and nature suffered by or asserted against the Agent or any
Bank as a direct or indirect result of (i) any representation set
forth in this section being incorrect in any material respect,
(ii) the breach of any warranty or covenant set forth in this
section, (iii) any federal, state or local law, regulation or
ordinance which requires the elimination or removal of any
Hazardous Substances which are at any time located on, in or
under the Land or used in connection therewith, including any
elimination or removal required of any person owning or
possessing any part of the Land after ownership or possession
thereof by the Agent or any Bank, other than the elimination or
removal of Hazardous Substances which are (A) first located on,
in or under the Land or used in connection therewith after the
last date on which the Borrower owned or possessed any part of
the Land, or (B) placed on, in or under the Land by the party
seeking indemnification.
<PAGE>
(d) The provisions of this section shall survive Payment of
the Note.
Section 6.9. Consolidated Adjusted Net Worth. The
Borrower will at all times keep and maintain a Consolidated
Adjusted Net Worth which is not less than $90,000 and not less
than 45% of the total assets of the Borrower and its
Subsidiaries.
Section 6.10. Fixed Charge Coverage Ratio. The Borrower
shall maintain, as of the last day of each quarter of each of its
fiscal years, a ratio of (1) Consolidated Pre-Tax Income of the
Borrower and its Restricted Subsidiaries for the period of 24
consecutive months ending as of the date of calculation to (b)
Fixed Charges of the Borrower and its Restricted Subsidiaries for
such 24-month period of not less than 1.25 to 1.00.
Section 6.11. Funded Debt. The Borrower shall not permit
its Consolidated Funded debt outstanding at any time to exceed
40% of its Consolidated Adjusted Capital at such time. For
purposes of this section, there shall not be included as Funded
Debt any Short-Term Debt if, during any period of twelve
consecutive calendar months immediately preceding the date of
determination, there is a period of at least 30 consecutive days
during which Short-Term Debt does not exceed $10,000,000;
provided that, if no such period exists, the amount by which the
lowest average daily principal amount of outstanding Short-Term
Debt exceeds $10,000,000 shall be included as Funded Debt.
Section 6.12. Limitations on Liens. The Borrower will not,
and will not permit any Restricted Subsidiary to, create or
incur, or suffer to be incurred or to exist, any Lien on the
property or assets of the Borrower or any Restricted Subsidiary,
whether now owned or hereafter acquired, or upon any income or
profits therefrom, or transfer any property for the purpose of
subjecting the same to the payment of obligations in priority to
the payment of the general creditors of the Borrower or any
Restricted Subsidiary, or acquire or agree to acquire, or permit
any Restricted Subsidiary to acquire, any property or assets upon
conditional sales agreements or other title retention devices,
except the Borrower and the Restricted Subsidiaries may create,
incur or permit to exist:
(a) Liens for property taxes and assessments or
governmental charges or levies, not yet due and
payable.
(b) Liens of or resulting from any judgment or
award, the time for the appeal or petition for
rehearing of which shall not have expired, or in
respect of which the Borrower or a Restricted
Subsidiary shall in good faith be prosecuting an appeal
or proceeding for a review and in respect of which a
stay of execution pending such appeal or proceeding for
review shall have been secured.
<PAGE>
(c) Any mechanic's, materialmen's,
warehousemen's, supplier's or vendor's lien or right in
respect thereof, any deposits or Liens to secure
statutory obligations or surety bonds or other Liens of
like general nature incurred in the ordinary course of
business and not in connection with the borrowing of
money, but only if in each case the obligation secured
is not overdue or, if overdue, is being contested in
good faith by appropriate actions or proceedings that
will prevent a forfeiture or sale of any property and
an adequate book reserve shall have been set aside with
respect thereto.
(d) Minor exceptions in the nature of easements,
rights of others for rights-of-way, utilities and other
similar purposes, or zoning or other restrictions as to
the use of real properties which customarily exist on
properties of such kind and which do not materially
impair their use or value in the operation of the
business of the Borrower and its Restricted
Subsidiaries.
(e) Liens existing as of the date hereof which
secure Indebtedness of the Borrower or any Restricted
Subsidiary outstanding on such date, but only if the
existence thereof has theretofore been disclosed to the
Banks in writing.
(f) Liens incurred after the date hereof given to
secure the payment of the purchase price incurred in
connection with the acquisition of tangible personal
property or real property, including Liens existing on
such property at the time of the acquisition thereof by
the Borrower or a Subsidiary, but only if (i) the Lien
shall attach solely to the property acquired or
purchased, (ii) the aggregate amount remaining unpaid
on all Indebtedness secured by Liens on such property,
whether or not assumed by the Borrower or a Restricted
Subsidiary, shall not exceed an amount equal to 80% of
the lesser of the purchase price or fair market value
at the time of acquisition of such property (as
determined in good faith by the board of directors of
the Borrower) and (iii) such Lien is incurred with
respect to such property at the time of, or within
twelve months after, such acquisition.
(g) Liens arising in the ordinary course of
business in connection with bankers' acceptances
provided to the Borrower under a revolving credit
agreement between the Borrower and FUNB, as agent, or
any extension, renewal or replacement thereof.
(h) Liens securing Indebtedness for borrowed
money, but only if the sum of (i) the aggregate
principal amount of Indebtedness so secured and (ii)
the aggregate unpaid principal amount of all Funded
Debt of Restricted Subsidiaries shall not exceed 15% of
the Consolidated Adjusted Net Worth.
<PAGE>
Section 6.13. Mergers, Consolidations and Sales of Assets.
(a) The Borrower will not, and will not permit any
Restricted Subsidiary to, consolidate with or be a party to a
merger with any other corporation or, except in the ordinary
course of business or except as provided in subsection (d), sell,
lease or otherwise dispose of all or a Substantial Part of the
assets of the Borrower or any Restricted Subsidiary; provided
that:
(i) Any Restricted Subsidiary may merge or
consolidate with or into the Borrower or any Wholly-
Owned Restricted Subsidiary so long as, in any merger
or consolidation involving the Borrower, the Borrower
shall be the surviving or continuing corporation and,
in any merger or consolidation involving a Wholly-Owned
Restricted Subsidiary (but not the Borrower), such
Wholly-Owned Restricted Subsidiary shall be the
surviving or continuing corporation.
(ii) The Borrower may consolidate or merge with
any other corporation if (A) the surviving or
continuing corporation shall be a corporation organized
under the laws of the United States or any state
thereof, (B) the surviving or continuing corporation
shall, if not the Borrower, assume in writing the due
and punctual payment of the principal of and interest
on the Note and the due observance and performance of
each of the covenants and other terms of this Agreement
to be observed or performed by the Borrower, and (C) at
the time of such consolidation or merger and after
giving effect thereto, no Event of Default, nor any
other event or condition which, with the giving of
notice of the lapse of time or both, would constitute
an Event of Default, shall have occurred and be
continuing.
(iii) A corporation may consolidate with or
merge into a Wholly-Owned Restricted Subsidiary if (A)
the surviving or continuing corporation shall be such
Wholly-Owned Restricted Subsidiary, (B) at the time of
such consolidation or merger and after giving effect
thereto, no Event of Default, nor any other event or
condition which, with the giving of notice or the lapse
of time or both, would constitute an Event of Default,
shall have occurred and be continuing, and (C) after
giving effect to such consolidation or merger, the
Borrower could still incur additional liens by reason
of Section 6.12(h).
(iv) Any Restricted Subsidiary may sell, lease or
otherwise dispose of all or substantially all of its
assets to the Borrower or any Wholly-Owned Restricted
Subsidiary.
(b) The Borrower will not permit any Restricted Subsidiary
to issue or sell any shares of stock of any class (including as
stock for the purposes of this section, any warrants, rights or
options to purchase or otherwise acquire stock or other
securities exchangeable for or convertible into stock) of such
Restricted Subsidiary to any person other than the Borrower or a
Wholly-Owned Restricted Subsidiary, except for the purpose of
qualifying directors.
<PAGE>
(c) The Borrower will not sell, transfer or otherwise
dispose of any shares of stock in any Restricted Subsidiary
(except to qualify directors) or any Indebtedness of any
Restricted Subsidiary, and will not permit any Restricted
Subsidiary to sell, transfer or otherwise dispose of (except to
the Borrower or a Wholly-Owned Restricted Subsidiary) any shares
of stock or any Indebtedness of any other Restricted Subsidiary.
(d) The Borrower will not, and will not permit any
Restricted Subsidiary to, sell, lease, transfer or otherwise
dispose of all or a Substantial Part of the assets of the
Borrower or any of its Restricted Subsidiaries, other than in the
ordinary course of business, in one or a series of transactions
to any person during any period of twelve consecutive months,
unless (A) the Borrower (i) invests the net proceeds of such
Disposition during such twelve-month period in Like Assets and/or
(ii) applies the Excess Proceeds to the prepayment of the Note
and (B) after giving effect to such Disposition, no Event of
Default, nor any event or condition which, with the giving of
notice or the lapse of time or both, would constitute an Event of
Default, shall exist.
Section 6.14. Restricted Payments. The Borrower will not:
(a) declare or pay any dividends, either in cash or
property, on any shares of its capital stock of any class (except
dividends or other distributions payable solely in shares of
capital stock of the Borrower);
(b) directly or indirectly, or through any Restricted
Subsidiary, purchase, redeem, retire or otherwise acquire for
value any shares of its capital stock of any class or any
warrants, rights or options to purchase or acquire any shares of
its capital stock (other than in exchange for or out of the net
cash proceeds from the substantially concurrent issuance or sale
of other shares of capital stock of the Borrower subsequent to
the Closing Date);
(c) make any other payment or distribution, either directly
or indirectly or through any Restricted Subsidiary, in respect of
its capital stock; or
(d) make or retain, or permit any Restricted Subsidiary to
make or retain, any Investment other than a Qualified Investment;
(all such declarations, payments, purchases, redemptions,
retirements, acquisitions, distributions and Investments, as
described in (a) through (d) above, being herein collectively
called "Restricted Payments") if, after giving effect thereto,
(i) the aggregate amount of Restricted Payments made during the
period from and after March 30, 1991 to and including the date of
the making of the Restricted Payment in question would exceed the
sum of (A) 10% of Consolidated Adjusted Net Worth as of the date
of the making of such Restricted Payment, plus (B) 50% of
Consolidated Net Income (less 100% of any net deficit) subsequent
to March 30, 1991, plus (C) the Additional Dividend Amount, or
(ii) an Event of Default, or an event or condition which, with
the giving of notice or the lapse of time or both, would
constitute an Event of Default, would exist.
<PAGE>
The Borrower will not declare any dividend which constitutes
a Restricted Payment payable more than 90 days after its date of
declaration. Any dividend which complies with the provisions of
this section on the date of its declaration shall be deemed to
comply on its date of payment, but only if any intervening event
giving rise to non-compliance is not the result of a Restricted
Payment.
Section 6.15. Restricted Subsidiaries. Any Subsidiary
which is or becomes a Restricted Subsidiary shall remain a
Restricted Subsidiary for all purposes of this Agreement unless
(a) the board of directors of the Borrower has designated the
Subsidiary an Unrestricted Subsidiary, (b) after giving effect to
the designation of such Subsidiary as an Unrestricted Subsidiary,
no Event of Default, nor any event or condition which, with the
giving of notice or the lapse of time or both, would constitute
an Event of Default, would exist, and (c) such Subsidiary shall
have no continuing investment, whether in the nature of capital
stock, Indebtedness or otherwise, in the Borrower or any
Restricted Subsidiary.
ARTICLE VII
Agency
Section 7.1. Appointment of Agent. Each Bank hereby
irrevocably appoints and authorizes the Agent to take such action
as agent on behalf of such Bank and to exercise such powers under
the Financing Instruments and the Intercreditor Agreement as are
delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto. The duties of the
Agent shall be mechanical and administrative in nature, and the
Agent shall not by reason of this Agreement be a trustee or
fiduciary for any Bank. The Agent shall have no duties or
responsibilities except those expressly set forth under the
Financing Instruments and the Intercreditor Agreement. As to any
matters not expressly provided for by the Financing Instruments
or the Intercreditor Agreement, the Agent may act or refrain from
acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Banks, and such
instructions shall be binding upon all Banks; provided that the
Agent shall not be required to take any action which exposes the
Agent to personal liability or which is contrary to the Financing
Instruments or the Intercreditor Agreement or applicable law.
The Agent may resign and be replaced as provided in the
Intercreditor Agreement. The Banks, or the successor Agent on
their behalf, shall promptly give the Borrower notice of any such
resignation or replacement. The Agent shall not be required to
take any action hereunder or under the Intercreditor Agreement,
other than any required distribution of moneys to the Banks,
until it is indemnified by the Banks to its satisfaction against
any costs or liability which it might incur by reason of so
acting.
<PAGE>
ARTICLE VIII
Guaranty
Section 8.1. Guaranty of Obligations. The Guarantors
hereby jointly and severally guarantee to the Agent, for the
benefit of the Banks, the prompt payment, when due, of all
obligations of the Borrower under the Financing Instruments (the
"Obligations") and agree that upon default by the Borrower in the
payment when due of any Obligation, the Guarantors will promptly
pay the same. The guaranty obligation of the Guarantors
contained in this section shall be a continuing, absolute and
unconditional guaranty. The foregoing is a guaranty of payment,
and not of collection.
Section 8.2. Waivers. (a) The Guarantors hereby waive
notice of the creation, incurrence or extension of any
Obligations now existing or hereafter arising.
(b) The Guarantors hereby waive protest, all demands and
all notices including, but not limited to, any notices in
connection with, related to or associated with, whether by law or
agreement, (i) the failure (whether partial or otherwise) by the
Borrower or by any other person to timely, properly or otherwise
pay or perform any Obligation or (ii) the creation, preservation,
perfection or enforcement or lack thereof, or any failure by any
person in respect thereof, regarding any Security.
Section 8.3. Forbearance and Modifications. The
Guarantors hereby agree that, without further notice or consent,
the same hereby being waived, and without affecting the
Guarantors' liabilities hereunder, the Agent or any Bank may at
any time, in the exercise of its sole discretion, take or refrain
from taking any lawful action, including without limitation
changing any terms of all or any part of any Obligations,
granting any extensions, modifications or renewals of any
Obligations, effecting any releases, compromises or settlements
or making any other indulgences with respect to any Obligations,
entering into any agreement concerning the use of any or all of
the Security or changing the terms of any agreement concerning
any or all of the Security, consenting to the substitution,
exchange or release of all or any part of the Security or any
person liable to the Agent or any Bank with respect thereto,
realizing upon all or any part of the Security in any lawful
manner, or forbearing from realizing upon all or any part of the
Security.
Section 8.4. Continuing Liability. (a) The Guarantors
shall not be released from any obligations or liability under and
shall not have any rights or recourse against the Agent or any
Bank, for any reason relating to (i) any default with respect to
any Security existing when the Security is accepted by the Agent
or any Bank or at any time thereafter, (ii) any failure to
convey, create or perfect a valid Lien in any Security, (iii) any
invalidity or defect in any Security, (iv) the existence of any
equities, defenses or claims in favor of others with respect to
any Security, (v) failure to correctly estimate the value of any
Security or the change in value of any Security, (vi) any
deterioration, waste or loss to any Security, and/or (vii) any
rights and consents granted, waivers made or other actions taken
or not taken by the Agent or any Bank under Section 8.2(b). THE
GUARANTORS HEREBY WAIVE ALL SURETYSHIP AND OTHER SIMILAR
DEFENSES, INCLUDING BUT NOT LIMITED TO THE RIGHT TO REQUIRE THE
AGENT OR ANY BANK TO PROCEED TO ENFORCE THE OBLIGATIONS AGAINST
ANY PERSON BEFORE OR CONTEMPORANEOUSLY WITH THE ENFORCEMENT OF
THIS GUARANTY.
<PAGE>
(b) The Guarantors' obligations and liabilities under the
Guaranty shall not be in any way affected or terminated if any
other person liable, primarily or secondarily, directly or
indirectly, for all or any part of any Obligations shall cease to
exist, dissolve, wind up its business, suspend business, make any
assignment for the benefit of creditors generally, become
insolvent or admit in writing its insolvency, generally not pay
its debts as they become due, or become a debtor in a bankruptcy
case or if a receiver, trustee or custodian is appointed for such
other person's property or is authorized to take charge of any of
its property to enforce a Lien against it or for purposes of
general administration for the benefit of its creditors, or if
such other person should petition or apply to any tribunal for
any receiver for or any trustee of it or its estate or for relief
under any bankruptcy, arrangement, reorganization, readjustment
of debt, receivership, dissolution or liquidation proceedings or
under any law relating to the relief of debtors, or have any such
action commenced against it, with or without its consent.
Section 8.5. Subrogation. The Guarantors hereby waive any
right of subrogation with respect to the Obligations or any
Security and agree not to enter into any agreement with the
Borrower which grants to either of the Guarantors any right
waived hereby or any right to recover from the Borrower any
amount paid by either Guarantor hereunder.
Section 8.6. Subordination. The Guarantors hereby (a)
subordinate to the Obligations any present and future debts,
obligations or liabilities, whether contingent or otherwise, of
the Borrower to any Guarantor, alone or with any other person,
(b) subordinate any Liens, whether now existing or hereafter
arising, securing payment of such debts, obligations or
liabilities, and (c) agree that no Guarantor shall ask for,
demand, sue for, take or receive any part of such debts,
obligations and liabilities while payment of any of the
Obligations is in default. If any payment is made to any
Guarantor on account of such debts, obligations or liabilities in
violation of the terms hereof, such Guarantor shall forthwith pay
all such amounts to the Agent to be credited and applied, in the
Agent's sole discretion (but Pro Rata), to the Obligations then
outstanding, whether matured or unmatured, contingent or
otherwise.
Section 8.7. Further Guaranties. Any subsequent guaranty
to or for the benefit of Agent or any Bank by any person,
including any Guarantor, shall not supersede or terminate the
Guaranty, but shall be an additional guaranty unless otherwise
stated therein. If any Guarantor has given a previous guaranty
to the Agent or any Bank, the Guaranty shall be in addition to
such previous guaranty.
<PAGE>
ARTICLE IX
Events of Default and Remedies
Section 9.1. Event of Default. Each of the following
shall be an Event of Default:
(a) Failure of the Borrower to make any payment of
principal of or interest on the Note when due and the
continuation of such failure for five days.
(b) Failure of any Obligor to observe or perform any of its
other covenants, conditions or agreements hereunder for a period
of 30 days after notice (unless the Borrower and the Agent shall
agree in writing to an extension of such time prior to its
expiration) specifying such failure and requesting that it be
remedied, given by the Agent to the Borrower, or in the case of
any such default that can be cured but cannot with due diligence
be cured within such 30-day period, failure of such Obligor to
proceed promptly to cure the same and thereafter prosecute the
curing of the same with due diligence.
(c) (i) Failure of any Obligor to pay generally its debts
as they become due, (ii) commencement by any Obligor of a
voluntary case under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law, (iii) consent by any
Obligor to the appointment of a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official for
such Obligor or any substantial part of the property of such
Obligor, or to the taking possession by any such official of any
substantial part of the property of such Obligor, or (iv) making
by any Obligor of any assignment for the benefit of creditors
generally.
(d) The entry of any decree or order for (i) relief by a
court having jurisdiction over any Obligor or the property of any
Obligor in an involuntary case under the federal bankruptcy laws,
as now or thereafter constituted, or any other applicable federal
or state bankruptcy, insolvency or other similar law, or (ii)
appointment of a receiver, liquidator, assignee, trustee,
custodian, sequestrator or similar official for any Obligor or
any substantial part of the property of any Obligor.
(e) Failure of any Obligor within 90 days after the
commencement of any proceeding against such Obligor under the
federal bankruptcy laws or any other applicable federal or state
bankruptcy, insolvency or similar law, to have such proceedings
dismissed or stayed.
(f) Reasonable determination by the Agent or any Bank that
any warranty, representation or other statement by or on behalf
of any Obligor contained in any Financing Instrument or any
financial statement or other information furnished in connection
with the issuance or sale of the Note was false or misleading in
any material respect at the time it was made or delivered.
(g) The acceleration of any indebtedness of any Obligor to
any person, in a principal amount of $1,000,000 or more, by
reason of a default (in payment or otherwise) with respect
thereto.
<PAGE>
Section 9.2. Remedies on Default. Upon the occurrence and
continuation of an Event of Default, the Agent may:
(a) Declare all payments hereunder and under the Note to be
due and payable on a date which is not earlier than 30 days after
notice of such declaration is given to the Borrower by the Agent,
whereupon the same shall become due and payable on such date.
(b) Take whatever action at law or in equity may appear
necessary or desirable to collect the amounts then due and
thereafter to become due hereunder or under the Note or to
enforce observance or performance of any covenant, condition or
agreement of the Obligors under the Financing Instruments.
The Agent shall give notice to the Borrower of the exercise
of any of the rights or remedies under this section (i) in
writing in the manner provided in Section 11.7 and (ii) by
telephone or telegram, provided that failure to give such notice
by telephone or telegram shall not affect the validity of the
exercise of any right or remedy under this section.
Any balance of the moneys collected pursuant to action taken
under this section remaining after payment of all costs and
expenses of collection and amounts due hereunder shall be paid to
the Banks and applied Pro Rata toward the making of Required
Payments then due and payable, provided that after Payment of the
Note and payment of all other sums required by applicable law any
such balance shall be paid to the Borrower.
Section 9.3. No Remedy Exclusive. No remedy herein
conferred upon or reserved to the Agent is intended to be
exclusive of any other remedy, and every remedy shall be
cumulative and in addition to every other remedy herein or now or
hereafter existing at law, in equity or by statute. No delay or
failure to exercise any right or power accruing upon an Event of
Default shall impair any such right or power or shall be
construed to be a waiver thereof, and any such right or power may
be exercised from time to time and as often as may be deemed
expedient.
Section 9.4. Counsel Fees and Other Expenses. The
Borrower shall on demand pay to the Agent the reasonable counsel
fees and other reasonable expenses incurred by the Agent or any
Bank in the collection of payments hereunder or the enforcement
of any other obligation of the Borrower upon an Event of Default.
Section 9.5. No Additional Waiver Implied by One Waiver.
If any party or its assignee waives a default by any other party
under any covenant, condition or agreement herein, such waiver
shall be limited to the particular breach so waived and shall not
be deemed to waive any other breach hereunder.
<PAGE>
ARTICLE X
Prepayment
Section 10.1. Option to Prepay. The Note may be prepaid at
the option of the Borrower according to its terms and subject to
any requirements contained therein. Such prepayment of the Note
shall be deemed prepayment of the Borrower's obligations
hereunder in the same amount. Prepayment of the Note in full
shall discharge the Borrower from its obligations under this
Agreement and the Note (other than obligations which survive
Payment of the Note), but only if such prepayment shall
constitute Payment of the Note.
Section 10.2. Mandatory Prepayment. If the Banks shall
determine that, due to one or more changes in ownership or voting
of the stock of the Borrower and/or one or more other changes
relating to such stock, effective control of the Borrower is
possessed by one or more stockholders who do not now possess such
effective control, the Banks may elect that the Note be prepaid
in full. The Borrower shall prepay the Note in full within 180
days after receiving notice of such election from the Banks or
from the Agent on behalf of the Banks.
ARTICLE XI
Miscellaneous
Section 11.1. Term of Agreement. This Agreement shall be
effective upon execution and delivery hereof. Subject to earlier
satisfaction upon prepayment of all of the Borrower's obligations
hereunder pursuant to Section 10.1 and the making in full of all
other Required Payments due and payable at the date of such
prepayment and subject to any provisions hereof which survive
Payment of the Note, the Obligors' obligations hereunder shall
expire on the date provided in the Note for the final payment of
principal thereon, or if all Required Payments have not been made
on such date, when all Required Payments have been made.
Section 11.2. Successors and Assigns. This Agreement shall
be binding upon, inure to the benefit of and be enforceable by
the parties hereto and their respective successors and assigns.
No assignment by any Obligor shall relieve such Obligor of its
obligations hereunder.
Section 11.3. Jurisdiction and Venue. Any judicial
proceeding to enforce performance of any obligation of any
Obligor under the Financing Instruments may be brought before any
court of competent jurisdiction located in the City of
Harrisonburg, Virginia or in the United Stated District Court for
the Western District of Virginia. If any such proceeding is
brought before any such court, no Obligor shall assert any
defense relating to the jurisdiction of such court or the venue
of such proceedings. The Obligors agree that service of process
with respect to any such proceeding may be made upon any employee
or officer of any Obligor who may be located in the Commonwealth
of Virginia at the time of such service and that any such
service shall be deemed to be valid service upon any Obligor
named as a party in such proceeding.
Section 11.4. Severability. If any provision of this
Agreement shall be held invalid by any court of competent
jurisdiction, such holding shall not invalidate any other
provision hereof.
Section 11.5. Applicable Law; Entire Understanding. This
Agreement shall be governed by the applicable laws of the
Commonwealth of Virginia. The Financing Instruments express the
entire understanding and all agreements between the parties and
may not be modified except in a writing signed by the parties.
No Financing Instrument may be modified before Payment of the
Note without the consent of the Banks.
<PAGE>
Section 11.6. Counterparts. This Agreement may be executed
in several counterparts, each of which shall be an original, and
all of which together shall constitute but one and the same
instrument.
Section 11.7. Notices. Except as may otherwise be provided
herein, all demands, notices, approvals, consents, requests and
other communications hereunder and under the other Financing
Instruments shall be in writing and shall be delivered or given
by certified mail, postage prepaid, addressed as follows:
(a) If to the Borrower, at:
For U.S. Mail: For Courier:
P. O. Box 7000 800 Co-op Drive
Broadway, VA 22815-7000 Timberville, VA 22853
Attn: Treasurer Attn: Treasurer
(b) If to either Guarantor, at:
For U.S. Mail: For Courier:
c/o WLR Foods, Inc. c/o WLR Foods, Inc.
P. O. Box 7000 800 Co-op Drive
Broadway, VA 22815-7000 Timberville, VA 22853
Attn: Treasurer Attn: Treasurer
(c) If to any Bank, at:
c/o First Union National Bank of Virginia
141 East Market Street
Harrisonburg, Virginia 22801
Attn: Commercial Banking; and
(d) If to the Agent, at:
141 East Market Street
Harrisonburg, Virginia 22801
Attn: Commercial Banking.
<PAGE>
Any Obligor, any Bank and the Agent may, by notice given
hereunder, designate any further or different addresses to which
subsequent demands, notices, approvals, consents, requests and
other communications shall be sent or persons to whose attention
the same shall be directed.
Section 11.8. Other Agreements. To the extent that the
execution and delivery of any Financing Instrument by any Obligor
or the performance of its obligations thereunder, would
constitute a violation of or default under any other agreement to
which any Bank and such Obligor are parties, such other agreement
is hereby amended (to the extent such amendment can be effected
without the consent of persons who are not parties to this
Agreement) to permit such execution and delivery or such
performance, as the case may be, and any default under such
agreement resulting from such execution and delivery or such
performance is hereby waived.
IN WITNESS WHEREOF, the Banks, the Agent and the Obligors
have caused this Agreement to be executed in their respective
names, all as of the date first above written.
FIRST UNION NATIONAL BANK OF
VIRGINIA
By_________________________________
Vice President
CORESTATES BANK, N.A.
By_________________________________
Vice President
CRESTAR BANK
By_________________________________
Senior Vice President
FIRST UNION NATIONAL BANK OF
VIRGINIA, as Agent
By_________________________________
Vice President
WLR FOODS, INC.
By_________________________________
Treasurer
WAMPLER-LONGACRE, INC.
By_________________________________
Treasurer
CASSCO ICE & COLD STORAGE, INC.
By_________________________________
Assistant Treasurer
<PAGE>
EXHIBIT 1
No. _________
REQUEST FOR BORROWING
First Union National Bank of Virginia, ________________, 19___
as Agent
141 East Market Street
Harrisonburg, Virginia 22801
Attn: Commercial Banking
Dear Sirs:
I hereby request an Advance, as defined in the Loan Agreement dated
as of June 1, 1994 (the "Agreement") among WLR Foods, Inc., First Union
National Bank of Virginia, Corestates Bank, N.A., Crestar Bank,
Wampler-Longacre, Inc. and Cassco Ice & Cold Storage, Inc., in the amount
of $_______________ to be paid to ___________________________________________
_____________________________________________________________________________
___________________________________________________________________________ on
___________________, 19_____, for ____________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
I hereby certify that (a) the representations of the Obligors (as
defined in the Agreement) set forth in Section 2.1 of the Agreement are
true and correct as if made on the date hereof, and (b) the making of the
Advance requested hereby will not, with notice or lapse of time or both,
constitute an Event of Default (as defined in the Agreement).
____________________________________________
Authorized Representative
23798
Exhibit 4.6
PROMISSORY NOTE
WLR FOODS, INC.
$25,000,000 Maximum July 20, 1994
WLR Foods, Inc. (the "Borrower"), for value received, hereby
promises to pay to First Union National Bank of Virginia,
Corestates Bank, N.A., also doing business as Philadelphia
National Bank, and Crestar Bank (collectively, the "Banks"), or
assigns, in lawful money of the United States of America, a
principal amount equal to the aggregate amount of Advances, as
defined in and made under the Agreement (as hereinafter defined),
but not to exceed $25,000,000.00, together with interest hereon
from the date hereof until payment and, to the extent permitted
by law, interest on any overdue installments of such interest, at
a per annum rate of interest equal to LIBOR (as hereinafter
defined), plus 1.0%. Interest hereon shall be calculated on the
basis of a year of 360 days and the actual number of days
elapsed.
Interest on the unpaid principal hereof shall be payable on
the first day of each month, beginning on the first day of the
month following the month in which occurs the date of this Note.
Principal of this Note shall be payable in installments of
$308,641.00 the first day of each month, beginning on November 1,
1994. If not sooner paid, the entire remaining principal balance
hereof shall be due and payable on July 1, 2001, together with
all interest then accrued.
If any principal payment hereon provided for above shall
exceed the outstanding principal balance hereof at the date such
payment is scheduled to be made, the amount of such payment shall
be reduced to the amount of such outstanding principal balance.
The amount by which such payment is reduced pursuant to the
preceding sentence shall be added to the amount of the next
principal payment due hereon, but such next principal payment (as
so increased) shall be subject to the provisions of the preceding
sentence. In no event shall the aggregate principal payments
required to be made hereon exceed the aggregate amount of
Advances.
As used in this Note, "LIBOR", as in effect on any day,
shall mean the London Interbank Offered Rates for one-month
deposits as shown in The Wall Street Journal on such day or, if
not so shown on such day, as most recently shown in The Wall
Street Journal. If the London Interbank Offered Rates should
cease to be shown in The Wall Street Journal, LIBOR shall
thereafter be determined on the basis of the London Interbank
Offered Rates as shown in such comparable source as the Agent (as
defined in the Agreement) may select. For purposes of
calculating interest on this Note, LIBOR as in effect on the<PAGE>
first day of a month shall be deemed to be in effect for the
entirety of such month.
All payments of principal of and interest on this Note shall
be made to the Agent, for the benefit of the Banks, in
immediately available funds, at the principal office of the Agent
in Harrisonburg, Virginia, or at such other place as the Agent
may in writing designate.
<PAGE>
This Note is subject to prepayment on the first day of any
month, in whole or in part, upon 30 days' prior written notice,
by payment of the outstanding principal amount hereof to be
prepaid.
This Note is issued pursuant to a Loan Agreement dated as of
June 1, 1994 among the Banks, the Borrower, Wampler-Longacre,
Inc. and Cassco Ice & Cold Storage, Inc. (the "Agreement") to
evidence the Borrower's obligation to repay the Loan (as defined
in the Agreement) and is entitled to the benefits and subject to
the conditions thereof, including the provisions of Section 5.3
thereof that the Borrower's obligations thereunder and hereunder
shall be unconditional. All of the terms, conditions and
provisions of the Agreement are, by this reference thereto,
incorporated herein as a part of this Note.
In case an Event of Default (as defined in the Agreement)
shall occur and be continuing, the principal of and interest on
this Note may be declared immediately due and payable as provided
in the Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed in its name as of the date first above written.
WLR FOODS, INC.
By_______________________________________
Treasurer
23841
EXHIBIT 13.1
<TABLE>
WLR FOODS, INC. AND SUBSIDIARIES FIVE YEAR FINANCIAL HIGHLIGHTS
Dollars in thousands, except per share data
<CAPTION>
July 2, July 3, June 27, June 29, June 30,
Fiscal year ended: 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales $727,270 $616,702 $514,465 $502,238 $494,156
Cost of sales 632,620 535,014 454,331 434,509 415,803
-------- -------- --------- ------- --------
Gross profit 94,650 81,688 60,134 67,729 78,353
Selling, general and
administrative expenses 63,606 55,732 48,191 50,019 49,595
-------- -------- ------- ------- ------
Operating income 31,044 25,956 11,943 17,710 28,758
Interest expense 4,989 3,816 2,755 928 925
Other expense (income) (431) (567) (251) (453) (491)
------- -------- ------- ------- -------
Total other 4,558 3,249 2,504 475 434
------- -------- ------- ------- --------
Earnings before income
taxes and minority
interest 26,486 22,707 9,439 17,235 28,324
Income tax expense 9,897 8,057 3,518 6,521 10,895
Minority interest 38 43 25 33 34
------- -------- ------- ------- --------
Net earnings 16,551 14,607 5,896 10,681 17,395
Less preferred stock
dividends - 1,389 982 - -
------ -------- ------- ------- -------
Net earnings available to
common shareholders $16,551 $13,218 $4,914 $10,681 $17,395
======= ======= ====== ======= =======
PER COMMON SHARE
Net earnings per share
(primary) $1.51 $1.42 $0.52 $1.02 $1.67
Net earnings per share
(fully diluted) 1.51 1.40 0.52 1.02 1.67
Dividends declared
(excluding Cassco pooling) 0.32 0.32 0.32 0.32 0.29
Book value 14.18 12.99 9.66 10.99 10.29
Year-end stock price 25.50 17.00 14.50 18.00 18.50
Common shares outstanding
(in thousands):
Average for the year 10,967 10,444<F1> 9,518 10,521 10,430
At year end 11,009 10,951 8,479 10,521 10,521
======= ======= ======= ======= ======
FINANCIAL POSITION AT END
OF YEAR
Working capital $69,989 $57,509 $40,337 $49,532 $46,039
Property, plant and
equipment, net 139,854 140,540 113,017 88,807 71,414
Total assets 283,051 265,626 207,736 175,329 157,763
Long-term debt 46,368 52,253 38,148 18,678 6,402
Preferred shareholders'
equity<F2> - - 29,507 - -
Common shareholders'
equity 156,157 142,255 81,881 115,625 108,258
======= ======== ======= ======== ========
<PAGE>2
ANALYTICAL &
OTHER INFORMATION
Current ratio
(compared to 1) 2.02 1.92 1.80 2.42 2.20
Total debt/total
capitalization 28.4% 33.5% 32.0% 16.1% 8.5%
Return on beginning
total equity 11.6 13.1 5.1 9.9 19.0
Capital expenditures $19,186 $31,766 $36,107 $29,471 $20,360
Depreciation expense 21,333 18,115 14,041 11,544 9,932
Amortization expense 520 445 168 - -
Interest expense 4,989 3,816 2,755 928 925
Dividends declared:
Common stock 3,513 3,124 2,854 3,314 2,948
Preferred stock - 1,389 982 - -
Market capitalization of
the Company's common
stock at year end 280,738 186,168 122,942 189,378 194,638
======== ======== ======= ========= ========
<FN>
<F1> Fully diluted shares
<F2> In March 1993, the Company repurchased all the preferred stock issued in January 1992.
</TABLE>
<PAGE>
EXHIBIT 13.2
Management's Discussion and Analysis
WLR Foods, Inc. and Subsidiaries
General Information
WLR Foods, Inc. again posted record sales during its fiscal year
ended July 2, 1994. Net earnings increased 13.3% to $16.6
million, raising net earnings to $1.51 per share. Several
factors contributed to this success. The Company consolidated
its chicken and turkey subsidiaries into one subsidiary,
Wampler-Longacre, Inc., and streamlined its management group to
take advantage of the strengths of each of its operating units.
Pounds sold increased 15.3% in fiscal 1994, reflecting the
completed expansion of the Moorefield, West Virginia chicken
processing complex, which achieved projected production levels in
January 1994. A full year of production at the New Oxford,
Pennsylvania turkey facility, acquired by WLR Foods in fiscal
1993, also helped boost sales volumes. Cassco Ice & Cold
Storage, Inc. expanded its operations with a $4.4 million
refrigerated warehouse in Harrisonburg and increased ice
production tonnage 20% by adding capacity at its Norfolk
facility. The warehouse became operational in mid-September 1994
while the ice expansion was completed in time to meet the
summer's seasonal high ice business. WLR Foods continues to
concentrate on the production and marketing of value-added
product lines which generate higher, more consistent profit
margins to insulate WLR Foods against cyclical industry swings.
WLR Foods experienced a challenging year in fiscal 1994 when, in
January 1994, Tyson Foods commenced a hostile takeover attempt of
the company. The offer was repeatedly rejected by the Board of
Directors and the shareholders of WLR Foods, and on August 5,
1994, Tyson Foods terminated its tender offer. WLR Foods spent
$3.1 million on its hostile takeover defense in fiscal 1994.
On August 29, 1994, the Company acquired Cuddy Farms, Inc.- USA
Food Division for $43.0 million in cash and 1,183,333 shares of
common stock. The acquisition will be accounted for as a purchase,
with the operations being absorbed into Wampler-Longacre, Inc.
The cash was provided by a draw on the line of credit and the seven
year loan provided by the banks. It is now estimated the purchase
price will be less than $73.8 million as originally reported. No
additional shares will be issued. If the purchase price is less than
$71.4 million, Cuddy will pay WLR Foods the difference in cash.
WLR Foods adopted SFAS No. 109 "Accounting for Income Taxes" in
fiscal 1994. The Company used the prospective method of adoption
of the statement. There was no cumulative effect adjustment
necessary on the consolidated statement of earnings as a result
of the adoption of the new statement. The consolidated balance
sheet as of July 2, 1994 reflects the adoption of SFAS No. 109.
WLR Foods will adopt SFAS No. 112 "Employers Accounting for
Postemployment Benefits," and SFAS No. 115 "Accounting for
Certain Investments in Debt Securities," in fiscal 1995. SFAS No.
116 "Accounting for Contributions Received and Contributions
Made," will be adopted by the end of fiscal 1996. Management
<PAGE>
believes there will not be a material impact on WLR Foods
financial statements as a result of the adoption of any or all of
these statements.
For the periods indicated, this table sets forth selected
information from WLR Foods Consolidated Statements of Earnings
expressed as a percentage of net sales
<TABLE>
Operations as a Percentage of Net Sales
<CAPTION>
Fiscal Year
------------------------------------
<S> <C> <C> <C>
1994 1993 1992
-------- ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales 87.0 86.8 88.3
-------- ------ -------
Gross profit 13.0 13.2 11.7
Selling, general and administrative expenses 8.7 9.0 9.4
-------- ------ -------
Operating profit 4.3 4.2 2.3
Interest expense .7 .6 .5
Other,net (.1) (.1) ---
-------- ------- -------
Earnings before income taxes and minority interest 3.7 3.7 1.8
Income tax expense and minority interest 1.4 1.3 .7
-------- ------- -------
Net earnings 2.3% 2.4% 1.1%
======== ======= =======
</TABLE>
The next table shows dollar and percentage changes in the components
of operating results over the past three fiscal years.
<TABLE>
Changes in Results of Operations
<CAPTION>
Fiscal Year Fiscal Year
1994 vs. 1993 1993 vs.1992
---------------------- ----------------------
$Increase % $Increase %
In millions, except per share data (Decrease) Change (Decrease) Change
----------- ------- --------- ------
<S> <C> <C> <C> <C>
Net sales $110.6 17.9% $102.2 19.9%
Cost of sales 97.6 18.2 80.6 17.8
------------ ------- ---------- -------
Gross profit 13.0 15.9 21.6 35.8
Selling, general and administrative
expenses 4.8 8.6 7.6 15.8
Hostile takeover defense costs 3.1 --- --- ---
------------ ------- ---------- ------
Operating profit 5.1 19.6 14.0 117.3
Interest expense 1.2 30.7 1.1 38.5
Other, net (.1) (24.0) .4 125.9
------------ ------- ---------- ------
Earnings before income taxes and
minority interest 3.8 16.6 13.3 140.6
Income tax expense and minority
interest 1.9 22.7 4.6 128.6
------------ ------- ---------- ------
Net earnings $ 1.9 13.3 $ 8.7 147.7
Preferred dividends (1.4) (100.0) .4 41.4
------------ ------- ---------- ------
Earnings available to common
shareholders $ 3.3 25.2% $ 8.3 169.0%
============ ======= ========== ======
Earnings per share (fully diluted) $ 0.11 7.9% $ 0.88 169.2%
============ ======= =========== ========
</TABLE>
<PAGE>
Results of Operations
Fiscal 1994 net sales were $727.3 million, up 17.9% from $616.7
million in fiscal 1993. Sales pounds increased 15.3% over fiscal
1993 levels. Chicken sales pounds were up 14.3% due to bringing
the expanded Moorefield chicken complex production to full
capacity. The New Oxford turkey facility, which WLR Foods
acquired during fiscal 1993, together with internal turkey
expansion, increased turkey sales pounds by 19.0% over the prior
year. Cassco's revenues increased 34.2% over fiscal 1993
reflecting a full year of revenues from the two ice acquisitions
in fiscal 1993. Fiscal year 1993 net sales had been up 19.9%
compared to fiscal 1992, a result of volume increases of chicken
and turkey sold.
Fiscal 1994 average quoted commodity prices for chicken and
turkey increased 5.4% and 5.8%, respectively, over prior year
average prices. This trend continued from fiscal 1993, with its
5% increase in average quoted commodity chicken prices and near
level average quoted commodity turkey prices, compared to fiscal
1992. Although certain average quoted chicken prices have
dropped modestly since the end of fiscal 1994, the average quoted
commodity turkey prices are moving seasonally higher, and above
last year at this time, as the holiday retail whole turkey season
approaches.
Fiscal 1994 cost of sales increased 18.2%, or $97.6 million to
$632.6 million, reflecting increased pounds sold and higher feed
costs. Cost of sales increased as a percentage of net sales to
87% for fiscal 1994 compared to 86.8% in fiscal 1993. The 1994
increase includes $16 million higher feed costs compared to
fiscal 1993. Per pound processing costs continued to improve
throughout fiscal 1994 as higher volumes were processed and
greater efficiencies were realized in operations. Fiscal 1993
cost of sales increased 17.8% to $535 million. This increase
reflected a 19.4% jump in sales pounds compared to the prior year
and start-up costs related to the Moorefield chicken complex of
$2.6 million were incurred during fiscal 1993.
Next to labor, grain is the next largest cost of producing and
processing chickens and turkeys. WLR Foods has several
purchasing mechanisms available to control the cost of grain.
These include cash purchasing, forward pricing, grain options,
and hedging with futures contracts. During fiscal 1994, the
Company only used cash purchasing and forward pricing to purchase
grain. Management has established policies to reduce the risk
associated with positions in grain needed in the future. The
policies limit the amount of forward priced grain allowed, not to
exceed 50% of future needs beyond 180 days, thereby reducing
economic risk in the event of a downturn in the grain markets.
At the close of fiscal 1994, WLR Foods had approximately 50% of
its soybean meal needs forward priced through August 1994 at
prices below $205 per ton delivered. Management views the use
of these purchasing methods as beneficial to WLR Foods although
grain at a fixed price may create a limited downside risk. At
the present time, indications are that the grain harvest for 1994
is expected to be markedly better than 1993, which should equate
to lower grain prices in fiscal 1995.
Disease in birds is another risk when raising poultry, but WLR
Foods uses strict biosecurity measures throughout its operations
to minimize this risk and produce high quality products for its
customers. Currently, management is not aware of any serious
poultry disease outbreaks in the areas where the company grows
poultry, except North Carolina, where the entire state is
experiencing some early mortality in turkey flocks. This is not
expected to have a material adverse effect on the company's
operations.
Gross margin remained relatively stable, decreasing a modest 0.2%
from 13.2% in fiscal 1993, to 13.0% in fiscal 1994 -- a result of
the higher grain costs incurred in fiscal 1994. Gross margin is
expected to improve as grain prices moderate and the company
continues to improve its operating efficiencies.
Selling, general and administrative expenses increased $7.9
<PAGE>
million, of which $4.8 million was due to normal business
operations. Additionally, the Company incurred $3.1 million in
advisory fees for its defense of Tyson Foods' attempted takeover
of the Company. Management anticipates additional advisory fees
will be incurred in fiscal 1995, but they will not be significant
to the total general and administrative expenses. Selling and
advertising expenses were up $1.1 million or 6.6% while sales
volumes increased 15.3%. Delivery costs rose $4.5 million as a
result of higher volumes sold. General and administrative
expenses decreased $0.8 million, the result of consolidating the
poultry subsidiaries. On a year-to-year basis, selling, general
and administrative expenses decreased from 9.0% in fiscal 1993 to
8.7% in fiscal 1994. This would have been approximately 8.3% if
the defense costs had not been incurred. In fiscal 1993, WLR
Foods selling, general and administrative expenses increased $7.6
million as a result of greater sales volumes, increased
management bonuses and increased profit sharing contributions
over fiscal 1992.
Interest expense rose to nearly $5.0 million in fiscal 1994, up
$1.2 million from fiscal 1993, due to higher interest rates and
increased borrowings during the period. In fiscal 1993, interest
expense was up $1.1 million with higher borrowing to fund
expansion programs. Interest capitalized decreased to $0.1
million in fiscal 1994 from $0.8 million in fiscal 1993, as the
major expansion projects began production.
The effective tax rates for fiscal 1994, 1993 and 1992 were
37.4%, 35.5% and 37.3%, respectively. The increase in taxes in
fiscal 1994 is due to higher federal statutory rates and lower
tax credits available to the Company. Management expects
effective tax rates in the future to be in the 37% to 38% range
for years of normal operating conditions.
Liquidity and Financial Condition
WLR Foods working capital position improved substantially in
fiscal 1994. Working capital was $70.0 million compared to $57.5
million, and current ratios were 2.0-to-1 compared to 1.9-to-1
for fiscal 1994 and fiscal 1993, respectively. Working capital
was generated from earnings and depreciation and was reduced by
capital spending and debt service. The farm price inventory
method was applied to all live inventories with the consolidation
of the poultry subsidiaries. This provided the Company with a one
time tax deferral of approximately $10.0 million, and helped to
offset increases in accounts receivable and inventories. Accounts
receivable increased $11.2 million primarily as the result of
higher sales. Live inventories were up $5.1 million due to
higher feed costs and increased production. Other current assets
increased $1.0 million due to the overpayment of current taxes
payable. The book value of WLR Foods common stock increased to
$14.18 per share, up $1.19 per share from the book value reported
at the end of fiscal 1993. This increase is reflective of the
earnings of fiscal 1994 decreased by dividends declared.
As of July 2, 1994 total debt-to-total capitalization was 28.5%,
compared to 33.5% at July 3, 1993. This ratio reflects payment
of long-term debt and earnings in fiscal 1994. This level is low
for public poultry companies and is expected to move back into
the 40% to 43% range with the acquisition of Cuddy Farms -- USA
Food Division. WLR Foods has $25.6 million remaining on its $35.0
million revolving line of credit. In June 1994, WLR Foods
entered into an agreement with its participating banks to extend
the current line of credit at the same terms through March 31,
1995. Management expects to replace and increase the line of
credit facility to meet future needs of WLR Foods. Indications
suggest the expanded facility will have similar or favorable
terms to the current facility.
Capital Resources
Capital resources are critical to the growth and strength of WLR
Foods. In fiscal 1994, WLR Foods spent $19.2 million on capital
projects. The major spending included $3.8 million of the $4.4
million budgeted on a Cassco cold storage warehouse facility.
<PAGE>
Additionally, $1.6 million of $2.0 million budgeted was spent to
improve WLR Foods information system. The system will be
completed in fiscal 1995. Other expenditures included normal
replacement and upgrades of operations. During fiscal 1994, the
Company took advantage of favorable lease rates available in the
marketplace and leased approximately $0.7 million of rolling
stock, plant equipment and office equipment.
For fiscal 1995, capital spending is budgeted at $23 million,
including $8.0 million to be spent on renovations and
enhancements of Cuddy operations. In addition, $3.7 million will
be leased. Except for the Cuddy expenditures, spending will be
for the normal replacement and upgrades of existing equipment.
The capital spending will be funded through earnings and
depreciation. Depreciation for fiscal 1995 is forecast at $24.5
million, including $3.5 million for Cuddy's operations.
Management is committed to grow WLR Foods profitably, enhancing
value for its shareholders. Management expects fiscal 1995 to
continue to provide both profit and growth opportunities for WLR
Foods.
<PAGE>
EXHIBIT 13.3
<TABLE>
WLR FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
Dollars in thousands, except per share data
Fiscal years ended July 2, 1994,
July 3, 1993 and June 27, 1992 1994 1993 1992
<S> <C> <C> <C>
Net sales $727,270 $616,702 $514,465
Cost of sales (Note 12) 632,620 535,014 454,331
------- ------- -------
Gross profit 94,650 81,688 60,134
Selling, general and administrative expenses 63,606 55,732 48,191
------ ------- ------
Operating income 31,044 25,956 11,943
Other expense:
Interest expense (Note 4) 4,989 3,816 2,755
Other income, net (431) (567) (251)
------ ------ -----
Other expense 4,558 3,249 2,504
------ ------ -----
Earnings before income taxes and minority interest 26,486 22,707 9,439
Income tax expense (Note 8) 9,897 8,057 3,518
Minority interest in net earnings of consolidated
subsidiary 38 43 25
------ ------ -----
NET EARNINGS 16,551 14,607 5,896
Less preferred stock dividends -- 1,389 982
-------- ------- ------
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS $16,551 $13,218 $4,914
======= ======= =======
NET EARNINGS PER COMMON SHARE (PRIMARY) $1.51 $1.42 $0.52
======= ======== =======
NET EARNINGS PER COMMON SHARE (FULLY DILUTED) $1.51 $1.40 $0.52
======= ======== =======
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
WLR FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Dollars in thousands
July 2, 1994 and July 3, 1993 1994 1993
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $771 $680
Accounts receivable, less allowance
for doubtful accounts of $360 and $363 52,305 41,090
Inventories (Note 3) 83,047 76,728
Other current assets 2,270 1,309
------- -------
Total current assets 138,393 119,807
Investments 954 720
Property, plant and equipment, net (Note 4) 139,854 140,540
Other assets 3,850 4,559
-------- -------
TOTAL ASSETS $283,051 $265,626
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable to banks (Note 5) $9,400 $12,900
Current maturities of long-term debt (Note 6) 6,275 6,381
Excess checks over bank balances 8,511 7,213
Trade accounts payable 20,937 18,451
Accrued expenses 16,103 15,626
Federal and state income taxes (Note 8) -- 790
Other current liabilities 881 876
Deferred taxes (Note 8) 6,297 61
------ ------
Total current liabilities 68,404 62,298
Long-term debt, excluding current maturities (Note 6) 46,368 52,253
Deferred income taxes (Note 8) 9,813 6,190
Minority interest in consolidated subsidiary 475 441
Other liabilities and deferred credits 1,834 2,189
------ ------
Total liabilities 126,894 123,371
Shareholders' equity (Notes 9 and 10):
Common stock, no par value. Authorized 100,000,000 shares;
issued and outstanding: 11,009,328 and 10,951,069 shares. 61,416 60,552
Additional paid-in capital 3,253 3,253
Retained earnings 91,488 78,450
------ -------
Total shareholders' equity 156,157 142,255
Commitments (Notes 7, 11 and 14) ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $283,051 $265,626
======== ========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
WLR FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
Dollars and shares in thousands, except per share data
<CAPTION> Additional
Fiscal years ended July 2, 1994, Preferred Stock Common Stock Paid-In Retained
July 3, 1993 and June 27, 1992. Shares Amount Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 29, 1991 -- -- 10,521 $10,489 $4,111 $101,025 $115,625
Net earnings 5,896 5,896
Dividends declared:
Preferred dividends - $33.29 per share (982) (982)
Common dividends - $0.32 per share (2,854) (2,854)
Issuance of preferred stock in exchange
for common stock 29.507 $29,507 (1,666) (2,188) (858) (26,725) (264)
Repurchase of common stock (529) (8,004) (8,004)
Issuance of common stock for
acquisition of business 153 1,971 1,971
------- ------ ------ ------ ----- ------ -------
BALANCE AT JUNE 27, 1992 29.507 29,507 8,479 10,272 3,253 68,356 111,388
Net earnings 14,607 14,607
Dividends declared:
Preferred dividends - $47.08 per share (1,389) (1,389)
Common dividends - $0.32 per share (3,124) (3,124)
Issuance of common stock for
acquisition of businesses 448 8,668 8,668
Issuance of common stock through public
offering 2,000 41,365 41,365
Repurchase of preferred stock (29.507) (29,507) (29,507)
Common stock issued under Stock
Option Plan including tax benefit of $167 18 130 130
Other common stock issued 6 117 117
------- -------- ----- ------ ------ ------ --------
BALANCE AT JULY 3, 1993 -- -- 10,951 60,552 3,253 78,450 142,255
Net earnings 16,551 16,551
Dividends declared:
Common dividends - $0.32 per share (3,513) (3,513)
Common stock issued under Stock Option Plan
including tax benefit of $158 40 450 450
Other common stock issued 18 414 414
------ ------ ------ ------- ------- ------- --------
BALANCE AT JULY 2, 1994 -- -- 11,009 $61,416 $3,253 $91,488 $156,157
====== ====== ====== ======== ======= ======= ========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
WLR FOODS. INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Dollars in thousands
Fiscal years ended July 2, 1994,
July 3, 1993 and June 27, 1992 1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $16,551 $14,607 $5,896
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation 21,333 18,115 14,041
(Gain) loss on sales of property, plant and equipment (12) (17) 121
Deferred income taxes 8,449 1,100 (98)
Other, net 520 445 133
Change in operating assets and liabilities net of acquired businesses:
Increase in accounts receivable (11,215) (2,380) (682)
Increase in inventories (6,319) (13,138) (6,915)
(Increase) decrease in other current assets (961) 601 720
Increase (decrease) in accounts payable 2,486 509 (318)
Increase (decrease) in accrued expenses and other (350) 99 3,266
------- ------ ------
Net cash provided by operating activities 30,482 19,941 16,164
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (19,186) (31,766) (36,107)
Acquisition of businesses (Note 2) -- (2,061) (450)
Proceeds from sales of property, plant and equipment 140 132 156
Additions to other assets (44) (1,199) (2,025)
Minority interest in net earnings of consolidated subsidiary, net of dividends 34 39 22
------- ------ -------
Net cash used in investing activities (19,056) (34,855) (38,404)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in notes payable to banks (3,500) (6,171) 10,698
Issuance of long-term debt -- 15,193 20,350
Principal payments on long-term debt (6,489) (962) (916)
Deferred debt financing costs -- -- (121)
Issuance of common stock 864 41,612 --
Repurchase of common stock -- -- (8,269)
Repurchase of preferred stock -- (29,507) --
Increase in excess checks over bank balances 1,298 366 2,825
Dividends Paid (3,508) (5,298) (3,017)
------- ------- ------
Net cash provided by (used in) financing activities (11,335) 15,233 21,550
------- ------ ------
Increase (decrease) in cash and cash equivalents 91 319 (690)
Cash and cash equivalents at beginning of fiscal year 680 361 1,051
------- ------ -------
Cash and cash equivalents at end of fiscal year $771 $680 $361
======= ====== =======
Supplemental cash flow information:
Cash paid for:
Interest $4,808 $4,237 $2,803
Income taxes 2,039 7,958 1,847
===== ===== =====
Non-cash financing activities:
In fiscal 1993: The Company issued 117,796 shares of WLR Foods, Inc.
common stock valued at $2,554,000 and $733,000 in notes
payable to purchase of the assets of two ice
manufacturing and disbribution companies. (Note 2.)
The Company issued 330,472 shares of WLR Foods, Inc.
common stock valued at $6,114,000 and a five year
promissory note payable for $842,000 as consideration
for the acquisition of Round Hill Foods, Inc. (Note 2.)
In fiscal 1992: The Company issued 29,507 shares of Series L Convertible
Preferred Stock for 1,666,149 shares of WLR Foods, Inc.
common stock.
The Company issued 153,125 shares of WLR Foods, Inc.
common stock valued at $1,971,000 to purchase property,
plant and equipment of Southern Ice Company, Inc.
See accompanying Notes to Consolidated Financial
Statements.
</TABLE>
<PAGE>
WLR FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
OTHER INFORMATION
Organization
WLR Foods, Inc. (the Company) is primarily engaged in fully
integrated turkey and chicken production, processing, further
processing and marketing. WLR Foods sells products through a
variety of selected national and international retail,
foodservice and institutional markets.
Fiscal year
The Company's fiscal year ends on the Saturday closest
to June 30. Fiscal years 1994, 1993 and 1992 ended on July 2,
1994, July 3, 1993 and June 27, 1992, respectively, and included
52 weeks in fiscal 1994 and fiscal 1992, and 53 weeks in fiscal
1993.
Principles of Consolidation and Presentation
The accompanying consolidated financial statements include the
accounts of WLR Foods and all of its wholly-owned and
majority-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the
Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories of feed, grain, eggs, packaging supplies, processed
poultry and meat products are stated at the lower of cost or
market as determined by the first-in, first-out valuation method.
Live poultry and breeder flocks consist of poultry raised for
slaughter and breeders. Poultry raised for slaughter are stated
at the lower of average cost or market. Breeders are stated at
average cost less accumulated amortization. The costs of
breeders are accumulated during their development stage and then
amortized into the cost of the eggs produced over the egg
production cycle of the breeders, using the straight-line
method.
The Company has four methods of purchasing grain; cash
purchasing, forward pricing,grain options and hedging with
futures contracts. Each purchasing method creates varying degrees
of risk for WLR Foods. As of July 2, 1994, WLR Foods had various
forward contractual agreements for the purchase of soybean meal
at fixed prices. The difference between the forward price
commitment and the current cash price is immaterial.
<PAGE>
Property, Plant and Equipment
Property, plant and equipment are stated at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the respective assets. The costs of
maintenance and repairs are charged to operations, while costs
associated with renewals, improvements and major replacements are
capitalized.
Income Taxes
Effective July 4, 1993, WLR Foods adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109). SFAS No. 109 mandates a change from the
deferred method of accounting for income taxes of APB Opinion 11
to the asset and liability method. Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable
to the differences between the financial statement carrying
amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income for the
years in which those temporary differences are expected to be
recovered or settled.
The Company adopted SFAS No. 109 using the cumulative effect of a
change in accounting principle. The adoption of the new statement
did not have a material effect on the consolidated statement of
earnings or the consolidated balance sheet.
Additionally, the adoption of SFAS No. 109 necessitated the
reclassification of certain amounts which had previously been
recorded net of tax in accordance with APB Opinion 11. The
following accounts were increased (decreased) as a result of the
adoption of SFAS No. 109.
Property, plant and equipment $1,589
Long-term debt 498
Current income taxes payable (857)
Current deferred income taxes payable 413
Long-term deferred income taxes 1,535
These reclassifications are only reported to reconcile the
Consolidated Statement of Cash Flows for the fiscal year ended
July 2, 1994.
Net Earnings Per Common Share
Net earnings per common share are based on the weighted average
number of common shares and common share equivalents outstanding
during the fiscal years (10,967,145 shares, 9,322,152 shares and
9,518,220 shares in 1994, 1993 and 1992, respectively). Net
earnings are reduced by the preferred stock dividend to arrive at
the net earnings available to common shareholders. Fully diluted
earnings per share assume the full conversion of the Series L
<PAGE>
Convertible Preferred Stock during the periods they were
outstanding. Fully diluted earnings per share were based on the
fully diluted weighted average common shares and common share
equivalents of 10,444,348 for fiscal 1993. The impact of the
convertible preferred stock was antidilutive for fiscal 1992,
therefore, the amounts reported for primary and fully diluted
earnings per share are the same.
Reclassifications
Certain 1993 and 1992 amounts have been reclassified to conform
with fiscal 1994 presentations.
2. Business Acquisitions
In May 1993, the Company acquired assets of two ice manufacturing
and distribution companies for $806,000 cash, $415,200 five-year
notes and $317,700 10-year notes, and 117,796 shares of WLR Foods
common stock valued at $2.6 million. These two operations have
been integrated into the Cassco Ice subsidiary. The acquisitions
were accounted for as a purchase, and accordingly, the fiscal
1993 statements included herein, reflect the assets
acquired at fair value and the results of operations of
the acquired companies from the date of acquisition.
On November 27, 1992, the Company acquired Round Hill Foods, Inc.
and affiliated companies (collectively referred to as Round Hill
Foods). Round Hill Foods is located in New Oxford, Pennsylvania
and is engaged in turkey production, processing, and marketing
operations. Its products are sold through a variety of selected
national and international retail, foodservice and industrial
markets. The Company issued 330,472 shares of WLR Foods, common
stock, valued at $6.1 million, paid $1 million in cash and issued
$842,000 of promissory notes payable over five years. In
addition, the Company assumed $11 million of debt. The
transaction was accounted for as a purchase and accordingly, all
accounts and transactions of Round Hill Foods are included in the
Company's consolidated financial statements as of the acquisition
date.
As of November 27, 1992, Round Hill Foods had the following
assets and liabilities (in thousands):
Accounts receivable $6,518
Inventories 7,199
Property, plant and equipment (net)10,501
------
Total assets acquired 24,218
Consideration paid
Cash and costs (1,176)
Promissory notes payable (842)
Stock issued (6,114)
-------
Total liabilities assumed $16,086
=======
<PAGE>
The following table shows the pro forma results of the Company as
if Round Hill Foods had been acquired at the beginning of the
respective fiscal years. This information is presented only for
comparative information and is not indicative of the results
which may have occurred if the transaction had been consummated
at the beginning of the periods presented.
Pro forma - Unaudited
Dollars in thousands, Fiscal year ended
except per share data
July 3, 1993 June 27, 1992
Sales $640,925 $575,475
Net income 13,253 5,385
Earnings per share $1.25 $0.45
3. Inventories
A summary of inventories at July 2, 1994 and July 3, 1993
follows:
Dollars in thousands 1994 1993
Live poultry and breeder flocks $39,719 $34,588
Processed poultry and meat products 22,969 23,057
Packaging supplies, parts and other 11,824 12,439
Feed, grain and eggs 8,535 6,644
------- ------
Total inventories $83,047 $76,728
======= =======
4. Property, Plant and Equipment
The Company's investment in property, plant and equipment at July
2, 1994 and July 3, 1993 was as follows:
Dollars in thousands 1994 1993
Land and improvements $14,260 $11,942
Buildings and improvements 82,514 79,128
Machinery and equipment 141,289 133,401
Transportation equipment 24,710 22,363
Construction in progress 6,000 2,452
------- ------
268,773 249,286
Less accumulated depreciation 128,919 108,746
------- ------
Property, plant and
equipment, net $139,854 $140,540
======= =======
<PAGE>
The Company capitalized interest costs with respect to certain
major construction projects of $82,000, $800,000 and $502,000 in
fiscal years 1994, 1993 and 1992, respectively.
5. Notes Payable to Banks
Notes payable to banks at July 2, 1994 and July 3, 1993 were as
follows:
Dollars in thousands 1994 1993
Notes payable under lines of credit
based on variable interest rates $9,400 $12,900
===== ======
Following is a summary of such borrowings during the past three
fiscal years:
Dollars in thousands 1994 1993 1992
Weighted average interest rate at end 5.52% 4.63% 4.68%
fiscal year
Weighted average interest rate during 4.65 4.44 5.42
fiscal year
Average amount of month-end borrowings $11,567 $14,733 $8,916
Maximum amount of borrowings
outstanding at any month end 15,900 27,100 16,100
At July 2, 1994, the Company had available unused loan
commitments to borrow additional amounts aggregating
approximately $25.6 million. The Company extended its current
revolving line of credit for nine months. The extension allows
the Company to borrow funds with terms comparable to the existing
facility.
<PAGE>
6. Long-Term Debt
Long-term debt at July 2, 1994 and July 3, 1993 consisted of the
following obligations:
Dollars in thousands 1994 1993
Fixed rate notes $27,000 $30,000
Variable rate notes 17,750 20,000
Other notes 7,893 8,634
------- ------
Total long-term debt 52,643 58,634
Less current maturities of long-term debt 6,275 6,381
------- -------
Long-term debt, excluding current
maturities $46,368 $52,253
======= ======
The Company had no agreements to maintain compensating balances
during fiscal 1994, 1993, or 1992. At July 2, 1994 and July 3,
1993, prime rate was 7.25% and 6.0%, respectively.
The fixed rate notes are unsecured and have a coupon rate of
9.41% with maturity in 2001. Annual principal repayments of $3.0
million began in fiscal 1994, with a final balloon payment of
$9.0 million due in 2001.
The variable rate notes, are unsecured and include an option for
the Company to fix the rate at a later date. Interest rates were
5.94% at July 2, 1994 and 4.43% at July 3, 1993. Annual principal
repayments of $2.25 million began in fiscal 1994, with final
maturity in 2001. The final payment is a balloon payment of $4.25
million.
Other notes include mortgage notes, industrial development
revenue bonds, and other secured and unsecured notes. No
individual note exceeds $1.1 million at July 2, 1994 and $1.4
million at July 3, 1993. Maturities range from 1994 to 2004 with
coupon rates varying between 4.0% and 10.0%.
The fair value of the fixed rate notes is estimated at $29.3
million based on quoted market prices for similar issues at July
2, 1994. The carrying value of all other debt approximates fair
value at July 2, 1994.
Covenants related to the debt agreements include requirements for
working capital, debt-to-equity, earnings coverage of fixed
charges and disposition of fixed assets.
Required annual principal repayments of long-term debt are as
follows:
Dollars in thousands
- - - ------------------------------------
Fiscal 1995 $6,275
Fiscal 1996 6,293
Fiscal 1997 6,268
Fiscal 1998 6,306
Fiscal 1999 6,164
<PAGE>
Subsequent to year-end the Company entered into a $25.0 million
seven-year variable rate note agreement with its banks. The loan
will be at the 30-day LIBOR rate plus 1% and will be repriced as
of the first of each calendar month. The Company has a 90 day-period
to draw the funds, which can be used for general corporate purposes.
7. Employee Benefits
The Company maintains a Profit Sharing and Salary Savings Plan
that is available to substantially all employees who meet certain
age and service requirements. Most participants may elect to make
contributions of up to 15% of their salary. For each employee
dollar contributed (limited to the first 4% of an employee's
compensation), the Company is required to contribute a matching
amount of 50 cents. The Company can also make additional
contributions at its discretion. Total Company contributions
under this plan were approximately $2.1 million, $1.5 million,
and $1.0 million, for fiscal 1994, 1993, and 1992, respectively.
8. Income Taxes
Effective July 4, 1993, WLR Foods, Inc. adopted SFAS No. 109
"Accounting for Income Taxes." See Note 1 for a discussion of the
effects of the accounting change.
The provisions for income taxes from operations were as follows for
fiscal years 1994, 1993 and 1992:
Dollars in thousands 1994 1993 1992
Current:
Federal $948 $5,985 $2,836
State 500 972 780
---- ---- -------
1,448 6,957 3,616
Deferred:
Federal 7,477 846 (40)
State 972 254 (58)
---- ---- -----
8,449 1,100 (98)
----- ------ ------
Total tax provision $9,897 $8,057 $3,518
====== ======= ======
The provisions for income taxes differ from the amounts resulting from
applying the federal statutory tax rates (35% for fiscal year 1994 and
34% for fiscal years 1993 and 1992) to earnings before income taxes
and minority interest as follows for fiscal years 1994, 1993 and
1992:
<PAGE>
Dollars in thousands 1994 1993 1992
Taxes computed using federal statutory $9,270 $7,720 $3,209
tax rates
State income tax expense, net of federal 957 809 476
tax benefit
Other, net (330) (472) (167)
----- ----- -----
Total tax provision $9,897 $8,057 $3,518
===== ===== =====
Effective tax rate 37.4% 35.5% 37.3%
The tax effects of temporary differences and carryforwards that give rise
to significant portions of deferred tax assets and deferred tax liabilities
at July 2, 1994 are listed below.
(Dollars in thousands) 1994
Deferred tax liabilities:
Inventories, principally due to live inventories
accounted for on the farm price method for tax
purposes ($11,901)
Plant and equipment, principally due to
differences in depreciation and capitalized interest (10,343)
Investments in subsidiary companies, principally
due to undistributed net income of the subsidiary (319)
Other (136)
-------
Gross deferred tax liabilities (22,699)
Deferred tax assets:
Insurance accruals, principally due to
the timing of payments vs. the recording of expense $1,599
Tax net operating loss carryforwards 1,428
Deferred compensation, principally due to
accrual for financial reporting purposes 1,217
Alternative minimum tax credit 948
Compensated absences, principally due to
accrual for financial reporting purposes 794
Accounts receivable, principally due to
allowance for doubtful accounts 140
Other 463
------
Gross deferred tax assets 6,589
Valuation allowance on deferred tax assets -
------
Net deferred tax liability ($16,110)
========
<PAGE>
At the adoption of SFAS No. 109 management determined a valuation
allowance was unnecessary, and during fiscal 1994 no allowance has
been recorded. Based on the Company's historical earnings, future
expectations of taxable income, the reversing of gross deferred tax
liabilities and potential net operating loss carrybacks, management
anticipates the Company will realize the gross deferred tax assets.
The sources of deferred income taxes and their related tax effects are
as follows for fiscal years 1993 and 1992:
Dollars in thousands 1993 1992
Excess of tax over financial statement depreciation $936 $581
Accrued expenses deductible in different periods
for financial reporting and tax purposes (586) (583)
Difference between financial statement and tax
bases of inventories 773 (147)
Other, net (23) 51
------ -----
Deferred tax provision (benefit) $1,100 ($98)
====== =====
At July 2, 1994, the Company has tax net operating loss carryforwards
of $1.4 million which are available to offset future federal taxable
income, if any through 2009. Additionally, the Company has alternative
minimum tax carryforwards of $0.9 million which are available to
reduce future federal regular income taxes, if any, over an indefinite
period.
9. Shareholders' Equity
In February 1994, the Board of Directors approved the adoption of the
Shareholder Protection Rights Plan (the Plan) wherein on February 14,
1994 one right attaches to and trades with each share of common stock.
Each right entitles the registered holder to purchase from the Company
at an exercise price of $68, the number of shares of common stock or
<PAGE>
participating preferred stock having a market value of twice the
exercise price. Such participating preferred stock is designed to have
economic and voting terms similar to those of one share of common
stock. Rights will separate from the common stock and become
exercisable following the earlier of 1) the date a person or group
acquires 15% or more of the outstanding stock, or 2) the tenth
business day (or such later date the Board may decide) after any
person or group commences a tender offer that would result in such
person or group holding a total of 15% or more of the common stock.
Additionally, rights owned by the acquiring person or group would
automatically become void.
If a person or group acquires between 15% and 50% of the outstanding
common stock, the Board may, in lieu of allowing rights to be
exercised, require each outstanding right to be exchanged for one
share of common stock or participating preferred stock. A provision in
the Plan allows for rights holders to acquire stock of the acquiring
person or group, in the event a change of control of the Company has
occurred.
The rights are redeemable by the Company at $0.01 per right prior to
becoming exercisable and expire ten years from issuance.
10. Stock Option Plan
The Company's Stock Option Plan was adopted by the Board of Directors
in accordance with the Long-Term Incentive Plan which was ratified by
the shareholders of the Company on November 1, 1988. The Plan
provides for the granting of incentive or nonqualified common stock
options. The option price under the Plan shall not be less than the
fair market value of the common shares as of the date of the grant.
The options vest over a three year period and are exercisable at
varying dates not to exceed ten years from the grant.
The changes in the outstanding common shares under option for fiscal
1994, 1993, and 1992 are listed in the following table:
Common shares Option
under option price
Outstanding at June 29, 1991 410,000 $12.33 to $18.50
Granted in fiscal 1992 119,250 $17.88
------ ---------------
Outstanding at June 27, 1992 529,250 $12.33 to $18.50
Cancelled or expired (79,500) $12.33 to $18.50
Exercised (47,250) $12.33
Granted in fiscal 1993 104,250 $22.00
------- ---------------
Outstanding at July 3, 1993 506,750 $12.33 to $22.00
Cancelled or expired (2,000) $17.88
Exercised (109,750) $12.33 to $18.50
Granted in fiscal 1994 100,250 $30.00
--------- ---------------
Outstanding at July 2, 1994 495,250 $17.88 to $30.00
======== ===============
<PAGE>
As of July 2, 1994, 291,084 options are exercisable.
11. Leases
The Company has entered into various operating lease agreements for
machinery and equipment. The leases are noncancellable and expire on
various dates through 2000. Total rent expense was approximately $1.4
million, $1.2 million and $1.1 million for fiscal 1994, 1993, and
1992, respectively. The following schedule presents the future minimum
rental payments required under the operating leases that have initial
or remaining noncancellable lease terms in excess of one year as of
July 2, 1994:
Dollars in thousands
Fiscal 1995 $940
Fiscal 1996 388
Fiscal 1997 310
Fiscal 1998 211
Fiscal 1999 114
Fiscal 2000 and thereafter 136
------
Total minimum leases payments $2,099
=====
12. Related Party Transactions
Certain directors of WLR Foods are contract growers
of live poultry to the Company. In addition, a WLR Foods director is a
director/officer of a company which supplies fuel and related products
to certain locations of the Company. A second director provided
consulting services to WLR Foods during fiscal 1994 and fiscal 1993.
Transactions with these related parties during the past three fiscal
years are as follows:
Purchases
from related
Dollars in thousands parties
Fiscal 1994 $1,522
Fiscal 1993 1,921
Fiscal 1992 3,782
In management's opinion, all related party transactions are conducted
under normal business conditions, with no preferential treatment given
to related parties.
<PAGE>
13. Selected Quarterly Financial Data (Unaudited)
The unaudited summary of quarterly results for fiscal 1994 and 1993
follows:
Dollars in thousands, except per share data
Fiscal year ended July 2, 1994 First Second Third Fourth
Net sales $179,028 $182,315 $171,090 $194,837
Operating income 7,293 7,901 3,171 12,679
Net earnings 3,784 4,133 1,303 7,331
Per share data:
Net earnings per common share $0.35 $0.37 $0.12 $0.67
Dividends declared per common
share 0.08 0.08 0.08 0.08
Market price (bid)-high 20.00 19.25 31.38 31.75
-low 16.75 17.25 27.50 25.75
Fiscal year ended July 3, 1993
Net sales $140,748 $146,619 $149,575 $179,760
Operating income 7,290 5,602 2,881 10,183
Net earnings 4,183 3,019 1,269 6,136
Net earnings available to
common shareholders 3,667 2,503 912 6,136
Per share data:
Net earnings per common
share (primary) $0.43 $0.29 $0.10 $0.56
Net earnings per common
share (fully diluted) 0.41 0.29 0.10 0.56
Dividends declared per
common share 0.08 0.08 0.08 0.08
Market price (bid)-high 18.00 21.88 25.25 22.25
-low 14.00 16.25 20.25 16.75
14. Subsequent event
On August 29, 1994 WLR Foods acquired substantially all of the net
assets of the foods division of Cuddy Farms, Inc., for cash of $43.0
million and 1,183,333 shares of common stock. The acquisition will be
accounted for as a purchase and will be recorded at fair market value.
The acquisition agreement provides for certain post-closing
<PAGE>
adjustments based on audit procedures, which may result in adjustments
to the purchase price. Pursuant to certain rights of this shareholder's
lenders, WLR Foods may be required to purchase the issued shares at a
fixed price of $15 per share. As a result, approximately $17.7
million will be reflected in the Company's consolidated balance sheet
as temporary equity reserved for repurchase of the shares.
<PAGE>
EXHIBIT 13.4
Independent Auditors' Report
The Board of Directors and Shareholders
WLR Foods, Inc.:
We have audited the accompanying consolidated balance sheets of WLR
Foods, Inc. and subsidiaries as of July 2, 1994 and July 3, 1993, and
the related consolidated statements of earnings, shareholders' equity
and cash flows for each of the fiscal years in the three-year period
ended July 2, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of WLR Foods, Inc. and subsidiaries as of July 2, 1994 and July 3,
1993, and the results of their operations and their cash flows for each
of the fiscal years in the three-year period ended July 2, 1994, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Richmond, Virginia
August 17, 1994, except Note 14
which is as of August 29, 1994
EXHIBIT 21
Subsidiary State of Incorporation
Wampler-Longacre, Inc. Virginia
P. O. Box 7275
Broadway, VA 22815
Cassco Ice & Cold Storage, Inc. Virginia
75 W. Bruce Street
Harrisonburg, VA 22801
May Supply Company, Inc. Virginia
P. O. Box 347
Harrisonburg, VA 22801
23668<PAGE>
Exhibit 22
SECURITY OWNERSHIP OF CERTAIN PERSONS
The following table sets forth the number and percentage of
shares of Company common stock held as of August 31, 1994 by the only
persons who, to the knowledge of the Company, beneficially own 5% or
more of the Company's outstanding common stock.
Name and Address Number Beneficially Owned Percent of Class<F1>
Crestar Bank NA 1,183,333<F2> 9.49%
919 E. Main Street
Richmond, VA 23219,Trustee for Cuddy Farms, Inc.
1 Based on 12,195,886 shares outstanding as of August 31, 1994 plus
271,782 shares which members of management have the option to
purchase within 60 days of August 31, 1994.
2 Shares held for the benefit of Cuddy Farms, Inc. pursuant to a
voting trust dated August 29, 1994, under the terms of which the
Trustee, Crestar Bank NA, is obligated to vote all shares in
accordance with the recommendation of the Board. In the absence
of a recommendation by the Board as to any proposal, the trustee
will vote as directed by Cuddy Farms, Inc. The Voting Trust,
subject to certain exceptions for early termination, terminates
on August 29, 1998.
The following table sets forth the number and percentage of
shares of Company common stock held as of August 31, 1994 by each of
the Company's directors, each executive officer of the Company who was
required to be named in the Cash Compensation Table, and by all
directors and executive officers as a group.
Name Number Beneficially Owned Percent of Class<F1>
George E. Bryan 304,046<F2> 2.4%
Charles L. Campbell 8,352<F3> *
Stephen W. Custer 62,102<F4> *
Calvin G. Germroth 12,020<F5> *
William H. Groseclose 2,132<F6> *
Henry L. Holler 25,740<F7> *
J. Craig Hott 70,047<F8> *
James L. Keeler 149,175<F9> 1.2%
Kenneth D. Marshall 46,337<F10> *
Herman D. Mason 197,612<F11> 1.6%
James L. Mason 90,060<F12> *
V. Eugene Misner 63,433>F13> *
<PAGE>
Charles W. Wampler, Jr. 348,000<F14> 2.8%
William D. Wampler 600,495<F15> 4.8%
All directors and executive 1,868,109<F16> 15.0%
officers as a group (consisting
of 17 persons, including those
named above)
_____________________________
* Denotes percent ownership not exceeding 1% of the class of common
stock.
[FN]
<F1> Based on 12,195,886 shares outstanding as of August 31, 1994 plus
271,782 shares which members of management have the option to
purchase within 60 days of August 31, 1994.
<F2> Includes 105,264 shares owned directly and 198,782 shares owned
by his wife. Mr. Bryan disclaims beneficial interest in the
shares held by his wife.
<F3> All shares owned directly.
<F4> Includes 33,418 shares owned directly, 9,328 shares owned by his
wife, 17,923 shares held as custodian for Mr. Custer's three
children, and 1,433 shares owned by his daughter who lives at
Mr. Custer's home. Mr. Custer disclaims beneficial interest in
the shares owned by his wife and daughter or held by him as
custodian.
<F5> All shares owned directly and through a self-directed retirement
account.
<F6> All shares owned directly.
<F7> Includes 2,365 shares owned jointly with his wife, 875 shares
owned by his wife through her self-directed retirement account,
and 22,500 shares which Mr. Holler has the right to purchase
within 60 days of August 31, 1994 through the exercise of
options.
<F8> Includes 69,847 shares owned by E. E. Hott, Inc., of which
Mr. Hott is an officer and director, and 200 shares held by his
wife as custodian for Mr. Hott's two children. Mr. Hott
disclaims beneficial interest in the shares held by his wife as
custodian.
<F9> Includes 32,312 shares owned directly and through self-directed
retirement accounts, 15,613 shares owned by his wife directly
and through her self-directed retirement account, and 101,250
shares which Mr. Keeler has the right to purchase within 60 days
of August 31, 1994 through the exercise of options. Mr. Keeler
disclaims beneficial interest in the shares owned by his wife.
<10> Includes 495 shares owned directly, 23,342 shares owned jointly
with his wife, and 22,500 shares which Mr. Marshall has the
right to purchase within 60 days of August 31, 1994 through the
exercise of options.
<F11> Includes 162,464 shares owned directly and 35,148 shares held as
trustee for the Louise T. Mason Trust. Mr. Mason disclaims
beneficial interest in the shares held by the Trust.
<PAGE>
<F12> Includes 29,785 shares owned directly and through self-directed
retirement accounts, 13,039 shares owned jointly with his wife,
685 shares owned by his wife through her self-directed
retirement account, 3,051 shares held as custodian for
Mr. Mason's two children, and 43,500 shares which Mr. Mason has
the right to purchase within 60 days of August 31, 1994 through
the exercise of options. Mr. Mason disclaims beneficial
ownership in the shares owned by his wife or held by him as
custodian.
<F13> Includes 840 shares owned through his self-directed retirement
account, 17,998 shares owned jointly with his wife, 870 shares
owned by his wife through her self-directed retirement account,
225 shares owned by his son who lives in Dr. Misner's home, and
43,500 shares which Dr. Misner has the right to purchase within
60 days of August 31, 1994 through the exercise of options.
Dr. Misner disclaims beneficial ownership in the shares owned by
his wife and son.
<F14> Includes 121,350 shares owned directly and as general partner of
Wampler Land, 45,310 shares owned by his wife, 129,646 shares
held as trustee of the Charles W. Wampler, Sr. Family Trust, and
51,694 shares held as trustee of the Charles W. Wampler, Sr.
Charitable Annuity Trust. Mr. Wampler disclaims beneficial
interest in the shares owned by his wife or held by the Trusts.
<F15> Includes 266,260 shares owned directly and as general partner of
Wampler Land, 134,102 shares owned by his wife, 18,793 shares
owned by May Meadows Farms, Inc., of which Mr. Wampler is an
officer and director, 129,646 shares held as trustee of the
Charles W. Wampler, Sr. Family Trust, and 51,694 shares held as
trustee of the Charles W. Wampler, Sr. Charitable Annuity Trust.
Mr. Wampler disclaims beneficial interest in the shares owned by
his wife or held by the Trusts.
<F16> This number does not reflect the sum of all of the preceding
number of shares beneficially owned by all of the above-named
directors and officers since 1,373 shares held by Charles W.
Wampler, Jr. and William D. Wampler as general partners of
Wampler Land, an 181,340 shares held as trustees by both
Charles W. Wampler, Jr. and William D. Wampler have been taken
into account in determining the number of shares beneficially
owned by each of Charles W. Wampler, Jr. and William D. Wampler,
individually. In addition, this amount includes the 271,782
shares which the group has the right to purchase within 60 days
of August 31, 1994 through the exercise of options.
INFORMATION CONCERNING DIRECTORS AND NOMINEES
Biographical summaries for the four director nominees and
the seven directors continuing in office appear in the following
chart.
<PAGE>
<TABLE>
<CAPTION>
Name and Position Director Principal Occupation
with the Company Age Since During the Last Five Years
Director Nominees
CLASS A DIRECTORS
(to serve until the 1997 annual meeting of shareholders)
<S> <C> <C> <C>
J. Craig Hott 41 1988 Vice President of Hott's Farming,
Inc. and Hott's Ag-Services, Inc.
Peter A.W. Green 57 1994 President and Chief Executive Officer
of Cuddy International Corporation since
November, 1993; previously, President
and Chief Executive Officer of Alcatel
Canada Wire, Inc.
Herman D. Mason 73 1984 Retired; previously, Chief Executive Officer
Vice Chairman of the Company until 1988 of the Board
Charles W. Wampler, Jr. 78 1984 Poultry and livestock farmer
Chairman of the Board
</TABLE>
<TABLE>
Directors Continuing in Office
CLASS B DIRECTORS
(to serve until the 1995 annual meeting of shareholders)
<S> <C> <C> <C>
Stephen W. Custer 52 1984 President of Custer Associates, Inc.
(consulting firm)
Calvin G. Germroth 70 1988 Broiler producer
James L. Keeler 59 1988 Chief Executive Officer of the Company since
President February 1988
</TABLE>
<TABLE>
CLASS C DIRECTORS
(to serve until the 1996 annual meeting of shareholders)
<S> <C> <C> <C>
George E. Bryan 72 1984 Poultry and livestock farmer
Charles L. Campbell 46 1988 Commissioner of Revenue for Page County, Virginia; broiler producer
William H. Groseclose 63 1993 Chairman of Harrisonburg Regional Board
and Winchester Regional Board of
First Union Bank; previously Chief
Executive Officer of Shenandoah
Valley region of Dominion Bank
William D. Wampler 66 1984 Poultry and livestock farmer
</TABLE>
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has always been fortunate to have directors who
are actively involved in, and knowledgeable about, the Company's businesses.
As a result, the Company has relationships with
certain directors and their families, which relationships are on
the same bases and terms as transactions with unrelated parties.
The following table identifies (i) amounts in excess of
$60,000 paid by the Company to each of the directors, members of
their immediate family, and entities related to the directors who
were contract growers with the Company during fiscal year ended
July 2, 1994, and (ii) amounts paid to directors who were contract
growers if such payments exceeded five percent of the
director's gross revenues for such activity during fiscal year
ended July 2, 1994. All such transactions were on the same bases
and terms as transactions with unrelated parties.
Total Amount Received from the
Directors Company and its Subsidiaries
Charles L. Campbell $ 86,035
Timothy Campbell, his son $ 63,546
Calvin G. Germroth $ 38,594
J. Craig Hott
Hott's Farming, Inc. $287,755
James L. Keeler
Gregory Keeler, his son $129,265
Charles W. Wampler, Jr.
Sunny Creek $170,203
C. W. Wampler & Sons $232,820
William D. Wampler
May Meadows Farm, Inc. $205,340
C. W. Wampler & Sons $232,820
During fiscal year ended July 2, 1994, the Company
purchased, either directly or through third-party suppliers,
$270,164 of fuel oil and propane from Franklin Oil Co., Inc., of
which J. Craig Hott is a director and minority shareholder. The
prices and terms were comparable to those of other oil companiesin the area.
During fiscal year ended July 2, 1994, the Company paid
$24,566 to Custer Associates, Inc., a consulting firm owned by
Stephen W. Custer, which assisted with the Company-wide quality
control program. The terms of this arrangement were competitive
and fully disclosed to the Board.
Charles W. Wampler, Jr. and William D. Wampler are brothers
and are uncles of Stephen W. Custer.
<PAGE>
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
Compensation Philosophy
The Executive Compensation Committee of the Company's Board
of Directors determines the annual salary, bonus and other
benefits of the Company's Chief Executive Officer and makes
decisions relating to stock option awards to executive officers
and other key personnel pursuant to the Company's Long TermIncentive Plan.
The Company's overall policy regarding executive
compensation is to provide competitive compensation packages that
attract and retain qualified executives and to reward its
executives for financial and operating results, annual and
long-term, which enhance the value of shareholders' investment inthe Company.
Base Salary
The base salary component of executive compensation within the Company
reflects the first goal stated above of attracting
and retaining qualified executives. Based on available figures,
the Company executives' base salaries are competitive compared to
other companies within Virginia and the industry. Periodic
increases in base salary are based on evaluations of past and
current performance, competitive market conditions and Company
performance.
Cash Bonus
The Company's Incentive Bonus Program achieves the second
goal of the Company's compensation philosophy, that of rewarding
financial and operating results on an annual basis. The Company
developed the Incentive Bonus Program in 1988 with the assistance
of independent executive compensation consultants, and the
Program has been administered since then by the Company's Human
Resource Department for the benefit of executive officers and
other key personnel. The bonus pool is determined annually by
reference to the Company's return on equity (ROE), and each individual's
specific bonus allocation is calculated by
multiplying ROE (adjusted for accrued incentive pay and taxes) by
his or her base salary and by a bonus factor which is based on
his or her position within the Company. As borne out in the
six-year history of the Company's Incentive Bonus Program, for
years in which the Company does not have a strong return on
equity, a significant portion of management's annual compensation
is reduced. Thus, bonuses comprise the part of management
compensation that is "at risk" based on the Company's annual
performance.
Long-Term Incentive Plan
Rewarding Company executives on a long-term basis is
accomplished through the Company's Long-Term Incentive Plan, a
stock option plan approved by the Company's shareholders in 1988.
By encouraging management investment in Company stock, the Plan
aligns management's interests with that of the shareholders;
namely, to enjoy long-term appreciation in the value of the
Company's common stock.
At the Plan's inception, an independent executive
compensation consulting firm recommended the number of options
that should be granted to the Company's executive officers and
other key personnel. The Executive Compensation Committee
awarded options at levels below those initially advised by the
consultants and, since then, have awarded options generally
consistent with the first year's levels.
During the first three years of option grants, all options
were granted at the market price prevailing at the time of the
grant. For different reasons, the option price has been
established above the market price in the last three years. In
1992, the Committee set the price at the prior year-end market
price rather than the then current market price. The Committee
believed that the prevailing market price plus $3.38 was more
reflective of the true value of the Company's shares at that
<PAGE>
time. In 1993, the Company completed a public offering of common
stock priced at $22 in February and the Committee established the
option price in July at $22, even though the market price on the
grant date was $5 lower, or $17 per share. In 1994, Tyson's
tender offer was $30, so the Committee established the option
price at $30 instead of the 1994 year-end trading value of
$25.50.
Deferred Compensation
The final significant component of the Chief Executive
Officer's compensation is deferred compensation, serving both
goals of providing a competitive compensation package and
rewarding results. Mr. Keeler's deferred compensation is essentially
a retirement plan with payouts beginning the year
after Mr. Keeler retires as Chief Executive Officer, but payouts
are calculated by reference to the increase in the Company's book
value over the term of Mr. Keeler's service. Specifically, 1.5%
of the annual increase in the Company's book value is allocated
annually to a deferred compensation account which, together with
accrued interest, is payable to him over a five-year period
beginning in the year after his retirement. However, if Mr.
Keeler's employment is terminated involuntarily or because of a
change in control of the Company, the balance of Mr. Keeler's
deferred compensation account becomes payable immediately.
Chief Executive Officer Compensation
For the last fiscal year, Mr. Keeler received a base salary
percentage increase of 2%, the average pay increase for all
employees. This increase maintains a base salary competitive
with chief executive positions within the state and industry.
Though Mr. Keeler's bonus factor was the same for the last fiscal
year as it has been since 1988, his bonus was lower because the Company's
ROE was lower. Mr. Keeler's deferred compensation
allocation was higher than the last fiscal year because, as
described above, deferred compensation is singularly a function
of increase in the Company's book value. Finally, the number of
stock options awarded Mr. Keeler under the Long Term Incentive Plan
was the same as it has been for the last five years,
reflecting a systematic effort to enhance Mr. Keeler's personal
financial interest in the strong management of the Company.
The bonus and deferred compensation awards for Mr. Keeler in
the last fiscal year are reflected in the Summary Compensation
Table set forth below and are, as already described, consistent
with improvements in the Company's financial profile. Indeed,
since the end of fiscal 1988, the first year of Mr. Keeler's
tenure with the Company, the Company's total market capitalization
has risen from $84,354,400 to $280,737,864 at the
end of fiscal 1994.
Herman D. Mason
Charles L. Campbell
Charles W. Wampler, Jr.
Executive Compensation Committee Members
SUMMARY COMPENSATION
The Summary Compensation Table below contains information
concerning annual and long-term compensation provided to the
Company's Chief Executive Officer and the other four most highly
compensated executive officers of the Company for all services
rendered to the Company and its subsidiaries for the fiscal year
sending July 2, 1994, July 3, 1993 and June 27, 1992.
Messrs. Holler and Marshall first became executive officers in
fiscal year ended July 2, 1994. Accordingly, their compensation
is detailed beginning in that year.
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Other
Annual Compensation Compensation Compensation<F1>
<S> <C> <C> <C> <C> <C>
Name and Options
Principal Position Year Salary ($) Bonus ($) Awarded (#) ($)
James L. Keeler 93-94 $245,096 $159,458 33,750 $229,212
Chief Executive 92-93 236,808 172,783 33,750 178,685
Officer & President 91-92 228,800 58,889 33,750 69,463
James L. Mason 93-94 $172,221 $75,958 14,500 $6,042
President, 92-93 160,610 71,859 14,500 5,220
Wampler-Longacre 91-92 152,250 24,492 14,500 3,935
V. Eugene Misner 93-94 $163,882 $66,638 7,500 $5,929
Vice President 92-93 160,610 71,859 14,500 5,465
Wampler-Longacre 91-92 152,250 24,492 14,500 4,500
Henry L. Holler 93-94 $133,099 $48,107 7,500 $4,951
Vice President Sales & Marketing
Kenneth D. Marshall 93-94 $133,099 $48,107 7,500 $4,956
Vice President
Plant Operations
_____________________________
<FN>
<F1> Includes Company contributions made to the Company's Profit Sharing
and Salary Savings Plan and term life insurance premiums paid by the
Company on behalf of the executive officers; for Mr. Keeler,
"Other Compensation" also includes deferred compensation.
</TABLE>
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
% of Total Potential Realizable
Options Exercise Value at Assumed
Options Granted to or Base Annual Rates of
Granted Employee in Price Expiration Stock Appreciation
(#) Fiscal Year $/Share Date for Option Term
5% 10%
<S> <C> <C> <C> <C> <C> <C>
James L. Keeler 33,750 33.7% $30.0 7/3/99 $85,900 373,545
James L. Mason 14,500 14.5 30.0 7/3/99 36,905 160,486
V. Eugene Misner 7,500 7.5 30.0 7/3/99 19,088 83,010
Henry L. Holler 7,500 7.5 30.0 7/3/99 19,088 83,010
Kenneth D. Marshall 7,500 7.5 30.0 7/3/99 19,088 83,010
</TABLE>
<PAGE>
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION> Value of
Unexercised
Number of In-The-Money
Unexercised Options<F1> at
Fiscal Fiscal
Shares Year-End (#) Year-End ($)
Acquired Value Exercisable/ Exercisable/
Name On Exercise (#) Realized ($) Unexercisable Unexercisable
<C> <C> <C> <C> <C>
James L. Keeler 33,750 330,581 101,250/67,500 704,531/164,531
James L. Mason 13,500 132,233 43,500/29,000 302,689/70,686
V. Eugene Misner 22,500 231,138 43,500/22,000 302,689/70,686
Henry L. Holler 6,000 49,545 22,500/15,000 156,525/36,562
Kenneth D. Marshall 6,000 51,645 22,500/15,000 156,525/36,562
<FN>
<F1> Represents the difference between the exercise price of
the option and $25.50, the closing price of the Company's
common stock as reported on the NASDAQ/National Market
System on July 1, 1994.
</TABLE>
EXECUTIVE AGREEMENTS
The Company has an employment agreement with the Chief
Executive Officer which expires June 27, 1998. The agreement
governs Mr. Keeler's compensation, specifically his base salary,
bonus, perquisites and benefits. Pursuant to the agreement,
during the current fiscal year, Mr. Keeler's base salary is
$249,998 and his bonus factor, discussed under "Cash Bonus" on
page 9 is 3.6, the same as the past five years. In any event,
Mr. Keeler is guaranteed a bonus of $25,000. Mr. Keeler's
deferred compensation allocation will continue to be calculated
at 1.5% of the increase in the Company's book value over each
preceding year, as explained previously under "Deferred
Compensation." Mr. Keeler's perquisites and benefits are
consistent with those provided to the Company's senior
management.
The Company also has entered into severance agreements with
each of James L. Keeler, James L. Mason, V. Eugene Misner,
Henry L. Holler and Kenneth D. Marshall (the Severance
Agreements). Pursuant to the Severance Agreements, each of these
individuals is entitled to certain payments (described below) if
the Company terminates his employment during a specified period
following a "Change in Control" of the Company.
For purposes of the Severance Agreements, a "Change in
Control" occurs (A) when an individual, entity or group acquires
beneficial ownership of 20% or more of the combined voting power
of the Company's outstanding stock, subject to certain exceptions
set forth in the executive's severance agreement, (B) when
individuals who as of February 4, 1994 constitute the Board of
Directors (the "Incumbent Board") and individuals whose
election, or nomination for election by the shareholders of the
Company, was approved by a vote of at least seventy-five percent
of the directors then comprising the Incumbent Board (who shall
after election be considered members of the Incumbent Board
unless such election occurs as a result of an actual or
threatened election contest or other actual or threatened
solicitation of proxies or consents by or on behalf of a person
other than the Company's Board of Directors) shall cease to
constitute a majority of the Company's Board of Directors, (C)
upon the approval by the shareholders of the Company of are
organization, merger or consolidation except in certain
instances set forth in the executive's severance agreement, or
(D) upon approval by the shareholders of the Company of the
complete liquidation or dissolution of the Company or the sale or
other disposition of all or substantially all of the assets of
the Company, except in certain instances set forth in the
Severance Agreements.
The Severance Agreements for each of Messrs. Keeler and
Mason provide that if the Company terminates his employment during
the three year period following a Change in Control of the
Company, other than for death, Cause (willful and continued
failure to perform duties or willful engaging in illegal conduct:
defined more specifically in the Severance Agreements) or
Disability (as defined in the Severance Agreement), or if here
signs for Good Reason (includes an adverse change in status or
position, a reduction in base salary or benefits, or relocation:
defined more specifically in the Severance Agreements) during
such three year period, he is entitled to receive an amount in
cash (the Severance Payment) equal to three times his total
annual compensation, which includes: (A) the higher of (x) his
annual base salary on the date of termination or (y) his annual
base salary in effect immediately prior to the Change in Control
and (B) an amount equal to the average of the bonuses awarded to
him in each of the three previous years, including, in the case
of Mr. Keeler, any bonuses awarded pursuant to any deferred
compensation arrangements. In the event that such payments
become subject to an excise tax imposed by Section 4999 of the
Internal Revenue Code (or any similar tax), the employee shall be
entitled to receive a "gross-up" payment in respect of such taxes
and in respect of any taxes on such gross-up payment as specified
in his Severance Agreement. These Severance Agreements also
provide for the continuation of employee welfare benefits (such
as health insurance) for three years after termination if his
employment is terminated during such three year period. In
addition, Mr. Keeler will be entitled to receive the Severance
Payment and other severance benefits if he resigns for any reason
during the 30-day period immediately following the first
anniversary of a Change in Control. The Severance Agreements for
Messrs. Misner, Holler and Marshall are similar to those
described above for Mr. Mason except they cover a two year period
after a Change in Control, the amount payable is equal to one and
one-half times his total annual compensation, and employee
welfare benefits will continue for one and one-half years if his
employment is terminated during such two year period.
STOCK PRICE PERFORMANCE GRAPH
The graph on the next page presents a comparison of
five-year cumulative total shareholder returns for WLR Foods,
Inc., the S&P 500 Index and a Peer Group Index. The graph
reflects the annual return from the Company's five previous
fiscal years-end, developed with a monthly index, assuming
dividends are reinvested monthly. The graph also assumes an
initial investment of $100 on June 30, 1989. The Peer Group
Index consists of Cagles, Inc., Golden Poultry Co., Inc., Hudson
Foods, Inc., Pilgrims Pride Corporation and Sanderson Farms,
Inc., companies within the same industry and with similar equity
market capitalization.
<PAGE>
6/89 6/90 6/91 6/92 6/93 6/94
Comp 100 82 75 71 93 91
S&P 500 100 113 117 128 142 140
WLRF 100 106 105 83 103 156
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
WLR Foods, Inc.:
We consent to incorporation by reference in the registration
statements on Form S-8 (No. 33-27037 and No. 33-63364) and on
Form S-3 ( No. 33-48293, No. 33-54692, and No. 33-63368) of WLR
Foods, Inc. of our reports dated August 17, 1994, except Note 14
which is as of August 29, 1994, relating to the consolidated
balance sheets of WLR Foods, Inc. and subsidiaries as of July 2,
1994 and July 3, 1993 and the related consolidated statements of
earnings, shareholders' equity and cash flows and related
schedules for each of the fiscal years in the three-year period
ended July 2, 1994, which reports appear or are incorporated by
reference in the July 2, 1994 annual report on Form 10-K of WLR
Foods, Inc.
KPMG PEAT MARWICK LLP
Richmond, Virginia
September 29, 1994<PAGE>
Exhibit 24
SPECIAL POWER OF ATTORNEY
Each of the undersigned officers and directors of WLR
Foods, Inc. (WLR Foods), a Virginia corporation, appoints
James L. Keeler and Delbert L. Seitz, or either of them (with
full power to each of them to act alone) as his attorneys-in-fact
and agents for him in such capacity either as an officer or
director, or both, of WLR Foods, and authorizes such persons on
behalf of WLR Foods, to sign and file any and all WLR Foods'
registration statements, reports, schedules and other filings,
and all amendments thereto, required or permitted to be filed
under federal or state securities laws, including without
limitation Forms 3, 4 and 5, registration statements, Form 10-K
annual reports, Form 10-Q quarterly reports and Form 8-K current
reports, with all exhibits and any and all documents required to
be filed with respect thereto, with the Securities and Exchange
Commission, National Association of Securities Dealers, and any
regulatory authority for any U.S. state or territory, and each of
us hereby ratifies and confirms all that our attorneys-in-fact
and agents or each of them may lawfully do or cause to be done by
virtue hereof.
WITNESS the following signatures and seals.
________________ _________________________SEAL)
Date John J. Broaddus
________________ ________________________(SEAL)
Date Jane T. Brookshire
________________ ________________________(SEAL)
Date George E. Bryan
________________ ________________________(SEAL)
Date Charles L. Campbell
________________ ________________________(SEAL)
Date Stephen W. Custer
________________ ________________________(SEAL)
Date Calvin G. Germroth
________________ ________________________(SEAL)
Date William H. Groseclose
________________ _______________________(SEAL)
Date J. Craig Hott
________________ ________________________(SEAL)
Date Peter A.W. Green<PAGE>
________________ ________________________(SEAL)
Date Herman D. Mason
________________ ________________________(SEAL)
Date Charles W. Wampler, Jr.
________________ ________________________(SEAL)
Date William D. Wampler
________________ ________________________(SEAL)
Date Henry L. Holler
________________ ________________________(SEAL)
Date Kenneth D. Marshall
________________ ________________________(SEAL)
Date James L. Keeler
________________ ________________________(SEAL)
Date James L. Mason
________________ ________________________(SEAL)
Date V. Eugene Misner
________________ ________________________(SEAL)
Date Delbert L. Seitz
21696
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0
0
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