September 30, 1996
Dear WLR Foods, Inc. Shareholder:
You are cordially invited to attend our annual meeting of
shareholders on Saturday, October 26, 1996 at 10:00 a.m. at Turner
Ashby High School, Bridgewater, Virginia. A map to the High School is
on the back of this Proxy Statement. Following the meeting, we will
have a lunch featuring our products. If you plan to attend the
meeting, please sign and return the enclosed reply postcard.
Also enclosed in this mailing is formal notice of the meeting, a
proxy and a Proxy Statement detailing the matters upon which the
shareholders will act at the annual meeting. Our Company's Annual
Report for fiscal year ended June 29, 1996 is also enclosed.
We urge you to complete, date and sign the enclosed proxy, and
return it as soon as possible, even if you plan to attend the meeting.
You may use the enclosed postage prepaid envelope to return both your
reply postcard and the proxy.
On behalf of everyone at WLR Foods, I thank you for your
continued support. I look forward to seeing you at our annual
meeting.
Sincerely,
/s/ James L. Keeler
James L. Keeler
Chief Executive Officer
and President
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF WLR FOODS, INC.
The annual meeting of shareholders of WLR Foods, Inc. will be
held on Saturday, October 26, 1996, at 10:00 a.m. at Turner Ashby High
School, 800 N. Main Street, Bridgewater, Virginia, for the following
purposes:
1. To elect four Class C directors to serve until the annual
meeting of shareholders in 1999.
2. To ratify the appointment of KPMG Peat Marwick LLP as
independent auditors for the fiscal year ending June 28,
1997.
3. To transact such other business as may properly come before
the meeting. The Board of Directors knows of no such
business at this time.
Only shareholders of record at the close of business on August
30, 1996 are entitled to notice of and to vote at the annual meeting
or any adjournments of the annual meeting.
To assure that your shares are represented at the annual meeting,
please complete, date and sign the enclosed proxy, and return it as
soon as possible in the enclosed postage prepaid envelope. You may
revoke your proxy at any time prior to the commencement of the annual
meeting.
By Order of the Board of Directors,
/s/ Robert T. Ritter
Robert T. Ritter
Secretary
<PAGE>
WLR FOODS, INC.
P. O. Box 7000
Broadway, Virginia 22815-7000
(540) 896-7001
PROXY STATEMENT
This Proxy Statement is furnished in connection with the
solicitation of proxies for use at the annual meeting of shareholders
of WLR Foods, Inc. (the Company) to be held Saturday, October 26,
1996, at 10:00 a.m. at Turner Ashby High School, 800 N. Main Street,
Bridgewater, Virginia, and at any adjournments thereof (the Annual
Meeting). The accompanying proxy is solicited by the Board of
Directors of the Company (the Board). The approximate mailing date of
this Proxy Statement and the accompanying proxy is September 30, 1996.
Our Company's Annual Report for the fiscal year ended June 29, 1996 is
being mailed to the Company's shareholders concurrently with this
Proxy Statement but should not be considered proxy solicitation
material.
All properly executed proxies delivered pursuant to this
solicitation will be voted at the Annual Meeting according to the
instructions thereon. In the absence of such instructions, such
proxies will be voted "FOR" the proposals detailed herein. Any person
signing and mailing the enclosed proxy may revoke the proxy at any
time prior to the commencement of the Annual Meeting. For each
shareholder who is a participant in the Company's Dividend
Reinvestment and Stock Purchase Plan, Employee Stock Purchase Plan
and/or Poultry Producer Stock Purchase Plan, the accompanying blue
proxy covers the shares of Company common stock in such shareholder's
accounts, as well as shares registered in the shareholder's name.
The cost of the solicitation of proxies will be paid by the
Company. Solicitations will be made by mail, except that, if
necessary, officers, directors and regular employees of the Company
and its affiliates may solicit proxies by telephone, facsimile or
other electronic means or by personal calls. The Company has retained
D.F. King & Co., Inc. to assist in the solicitation of proxies for a
fee of Three Thousand Five Hundred Dollars ($3,500.00) and
reimbursement of expenses. Brokerage houses and nominees will be
requested to forward the proxy solicitation material to the beneficial
owners of WLR Foods stock held of record by such persons, and the
Company will reimburse them for their charges and expenses in this
regard.
OUTSTANDING SHARES AND VOTING RIGHTS
Only shareholders of record at the close of business on
August 30, 1996 will be entitled to vote at the Annual Meeting. As of
such date, the Company had outstanding 17,699,486 shares of its common
stock, no par value, each of which is entitled to one vote at the
Annual Meeting.
A majority of votes entitled to be cast on matters
considered at the Annual Meeting constitutes a quorum. If a share is
represented for any purpose at the Annual Meeting, it is deemed to be
present for purposes of establishing a quorum. Abstentions and shares
held of record by a broker or its nominee (Broker Shares) which are
voted on any matter are included in determining the number of votes
present or represented at the Annual Meeting. Conversely, Broker
Shares that are not voted on any matter will not be included in
determining whether a quorum is present.
If a quorum is established, directors will be elected by a
plurality of the votes cast by shareholders at the Annual Meeting, and
the proposal for the ratification of the independent auditors will be
approved if the votes cast in favor of the proposal exceed the votes
cast opposing. Votes that are withheld and Broker Shares that are not
voted will not be included in determining the number of votes cast.
SECURITY OWNERSHIP OF CERTAIN PERSONS
The following table sets forth the number and percentage of
shares of Company common stock held as of June 29, 1996 by the only
persons who, to the knowledge of the Company, beneficially own 5% or
more of the Company's outstanding common stock.
<PAGE>
______________________________________________________________________
Name and Address Number Beneficially Owned Percent of Class <F1>
______________________________________________________________________
Crestar Bank NA 2,231,935 <F2> 12.6%
919 E. Main Street
Richmond, VA 23219, Trustee for Cuddy Farms, Inc.
[FN]
<F1> Based on 17,681,893 shares outstanding as of June 29, 1996.
<F2> Includes 1,774,999 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. Cuddy Farms, Inc.
may not transfer its interest in the Cuddy Voting Trust except
(a) to pledge, mortgage or otherwise encumber its interest or (b)
to transfer its interest to Cuddy International Corporation or a
wholly owned subsidiary of Cuddy International Corporation.
Also includes 456,936 shares held by Crestar Bank, NA, Voting
Trustee for the benefit of New Hope Feeds, Inc., Economy Truck
Leasing, Inc., J. Harold Weber, James H. Weber, Jr., Robert L.
Weber, and Peggy W. Kearney, pursuant to a Voting Trust Agreement
dated September 29, 1995. Pursuant to the New Hope Feeds Trust
Agreement, Crestar is obligated to vote the trust shares in
accordance with the recommendation of the Board of Directors of
the Company as to matters submitted to the shareholders, other
than routine matters. The Voting Trust will terminate on
September 29, 1999, subject to certain exceptions for early
termination. Transfer restrictions similar to those applicable
to the Cuddy Trust apply to the New Hope Feeds Trust.
The following table sets forth the number and percentage of
shares of Company common stock held as of June 29, 1996 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>
______________________________________________________________________
John J. Broaddus 75,810<F3> *
George E. Bryan 2,660,516<F2,4> 15.0%
Charles L. Campbell 2,244,463<F2,5> 12.7%
Stephen W. Custer 2,318,237<F2,6> 13.1%
Calvin G. Germroth 2,249,965<F2,7> 12.7%
William H. Groseclose 2,235,177<F2,8> 12.6%
Henry L. Holler 41,493<F9> *
J. Craig Hott 2,337,005<F2,10> 13.2%
James L. Keeler 2,463,283<F2,11> 13.8%
Herman D. Mason 2,474,511<F2,12> 14.0%
James L. Mason 193,102<F13> 1.1%
V. Eugene Misner 89,716<F14> *
Charles W. Wampler, Jr. 2,712,436<F2,15> 15.3%
William D. Wampler 3,135,912<F2,16> 17.7%
All directors and executive 4,892,370<F2,17> 27.1%
officers as a group (consisting
of 16 persons, including those
named above)
_____________________________
2
<PAGE>
[FN]
* Denotes percent ownership not exceeding 1% of the class of common
stock.
<F1> Based on 17,681,893 shares outstanding as of June 29, 1996 plus
shares which members of management have the option to purchase
within 60 days of June 29, 1996.
<F2> Includes 1,774,999 shares held by Crestar Bank, NA, Voting
Trustee for the benefit of Cuddy Farms, Inc. which must vote its
shares in accordance with the recommendation of the Board of
Directors of the Company as to any proposal to be submitted to
shareholders. Also includes 456,936 shares held by Crestar Bank,
NA, Voting Trustee for the benefit of New Hope Feeds, Inc., and
others, which must vote its shares in accordance with the
recommendation of the Board of Directors of the Company as to
certain matters submitted to shareholders. Each director
disclaims beneficial ownership in the shares owned by the Cuddy
and New Hope Feeds Voting Trusts.
<F3> Includes 42,035 shares owned directly, 25 shares owned by his
wife and 33,750 shares which Mr. Broaddus has the right to
purchase within 60 days of June 29, 1996 through the exercise of
options. Mr. Broaddus disclaims beneficial interest in the
shares held by his wife.
<F4> Includes 143,998 shares owned directly and 284,583 shares owned
by his wife. Mr. Bryan disclaims beneficial interest in the
shares held by his wife.
<F5> All shares owned directly, except for shares owned by the Cuddy
Voting Trust and the shares owned by the New Hope Feeds Trust, as
set forth in Note 2
<F6> Includes 47,477 shares owned directly, 13,992 shares owned as
personal representative of the Estate of Margaret Custer, 22,684
shares held as custodian for Mr. Custer's two children, and 2,149
shares owned by his daughter who lives at Mr. Custer's home.
Mr. Custer disclaims beneficial interest in the shares owned by
his daughter or held by him as custodian.
<F7> All shares owned directly and through his self-directed
retirement account, except for shares owned by the Cuddy Voting
Trust and the shares owned by the New Hope Feeds Trust, as set
forth in Note 2.
<F8> All shares owned directly and through his self-directed
retirement account, except for shares owned by the Cuddy Voting
Trust and the shares owned by the New Hope Feeds Trust, as set
forth in Note 2.
<F9> Includes 6,431 shares owned jointly with his wife, 1,312 shares
through his self-directed retirement account, and 33,750 shares
which Mr. Holler has the right to purchase within 60 days of
June 29, 1996 through the exercise of options.
<F10>Includes 104,770 shares owned by E. E. Hott, I, of which Mr. Hott
is an officer and director, and 300 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.
<F11>Includes 52,707 shares owned directly and through self-directed
retirement accounts, and 23,641 shares owned by his wife directly
and through her self-directed retirement account, and
155,000 shares which Mr. Keeler has the right to purchase within
60 days of June 29, 1996 through the exercise of options. Mr.
Keeler disclaims beneficial interest in the shares owned by his
wife.
<F12>Includes 189,854 shares owned directly and 52,722 shares held as
trustee for the Louise T. Mason Trust. Mr. Mason disclaims
beneficial interest in the shares held by the Trust.
<F13>Includes 50,069 shares owned directly and through his
self-directed retirement account, 20,734 shares owned jointly
with his wife, 1,027 shares owned by his wife through her
self-directed retirement account, 5,903 shares held as custodian
for Mr. Mason's two children, and 47,369 shares held as trustee
for the Herman D. Mason Trust and 68,000 shares which Mr. Mason
has the right to purchase within 60 days of June 29, 1996 through
the exercise of options. Mr. Mason disclaims beneficial
ownership in the shares owned by his wife or held by him as
custodian.
<F14>Includes 1,297 shares owned through his self-directed retirement
account, 31,990 shares owned jointly with his wife, 1,342 shares
owned by his wife through her self-directed retirement account,
337 shares owned by his son who lives in Dr. Misner's home, and
54,750 shares which Dr. Misner has the right to purchase within
3
<PAGE>
60 days of June 29, 1996 through the exercise of options.
Dr. Misner disclaims beneficial ownership in the shares owned by
his wife and son.
<F15>Includes 138,498 shares owned directly and as general partner of
Wampler Land, 67,965 shares owned by his wife, 194,469 shares
held as trustee of the Charles W. Wampler, Sr. Family Trust, and
79,569 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>Includes 399,847 shares owned directly and as general partner of
Wampler Land, 201,903 shares owned by his wife, 28,189 shares
owned by May Meadows Farms, Inc., of which Mr. Wampler is an
officer and director, 194,469 shares held as trustee of the
Charles W. Wampler, Sr. Family Trust, and 79,569 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.
<F17>This number does not reflect the sum of all of the preceding
numbers of shares beneficially owned by all of the above-named
directors and officers since 2,117 shares held by Charles W.
Wampler, Jr. and William D. Wampler as general partners of
Wampler Land, and 274,038 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, and the 2,231,935 shares held by the Cuddy Voting
Trust and the New Hope Feeds Voting Trust have been taken into
account in determining the number of shares beneficially owned by
each of the directors. In addition, this amount includes 360,083
shares which the group has the right to purchase within 60 days
of June 29, 1996 through the exercise of options.
PROPOSAL ONE: ELECTION OF DIRECTORS
The term of office for the current Class C directors expires
at the Annual Meeting. The Board of Directors has nominated such
directors, namely George E. Bryan, Charles L. Campbell, William H.
Groseclose and William D. Wampler for election, for a three-year term,
by the shareholders at the Annual Meeting. Messrs. Bryan, Campbell,
Groseclose and Wampler were elected by shareholders at the 1993 annual
meeting.
The persons named as proxies in the accompanying form of
proxy, unless instructed otherwise, intend to vote for the election of
each of these nominees for directors. If any nominee should become
unavailable to serve, the proxy may be voted for the election of a
substitute nominee designated by the Board. The Board has no reason
to believe any of the nominees will be unable to serve if elected.
Any shareholder entitled to vote for the election of
directors at a meeting may nominate persons for election as directors
only if written notice of such shareholder's intent to make such
nomination is given, either by personal delivery or by United States
mail, postage prepaid, to Robert T. Ritter, Secretary, WLR Foods,
Inc., P. O. Box 7000, Broadway, Virginia 22815-7000, not later than
(i) with respect to an election to be held at an annual meeting of
shareholders, 90 days in advance of such meeting, and (ii) with
respect to any election to be held at a special meeting of
shareholders for the election of directors, the close of business on
the seventh day following the date on which notice of such meeting is
first given to shareholders. Each such notice must set forth (i) the
name and address of the shareholder who intends to make the nomination
and of the person or persons to be nominated, (ii) a representation
that such shareholder is a holder of record of stock of the Company
entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in
the notice, (iii) a description of all arrangements or understandings
between such shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by such shareholder,
(iv) such other information regarding each nominee proposed by such
shareholder as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and
Exchange Commission if such nominee had been nominated by the Board of
Directors, and (v) the consent of each nominee to serve as a director
of the Company if elected. The chairman of the shareholders' meeting
may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
The Board recommends election of the Class C
director nominees set forth on the following page.
4
<PAGE>
INFORMATION CONCERNING DIRECTORS AND NOMINEES
Biographical summaries for the four director nominees and
the six directors continuing in office appear in the following chart.
__________________________________________________________________________
Name and Position Director Principal Occupation
with the Company Age Since During the Last Five Years
__________________________________________________________________________
Director Nominees
CLASS C DIRECTORS
(to serve until the 1999 annual meeting of shareholders)
George E. Bryan 74 1984 Poultry and livestock farmer
Charles L. Campbell 48 1988 Commissioner of Revenue for Page
County, Virginia; broiler producer
William H. Groseclose 65 1993 Chairman of Harrisonburg Regional
Board and Winchester Regional
Board of First Union National Bank
of Virginia; previously Chief
Executive Officer of Shenandoah
Valley region of Dominion Bank
William D. Wampler 68 1984 Poultry and livestock farmer
Directors Continuing in Office
CLASS A DIRECTORS
(to serve until the 1997 annual meeting of shareholders)
J. Craig Hott 43 1988 Vice President of Hott's
Farming, Inc. and Hott's
Ag-Services, Inc.
Herman D. Mason 75 1984 Retired; previously,
Vice Chairman Chief Executive Officer
of the Board of the Company until 1988
Charles W. Wampler, Jr. 80 1984 Poultry and livestock farmer
Chairman of the Board
CLASS B DIRECTORS
(to serve until the 1998 annual meeting of shareholders)
Stephen W. Custer 54 1984 President of Custer Associates,
Inc. (consulting firm)
Calvin G. Germroth 72 1988 Broiler producer
James L. Keeler 61 1988 Chief Executive Officer of the
President Company since February 1988
BOARD MEETINGS AND COMMITTEES
The Board met eight times during fiscal year ended June 29,
1996. Each director attended at least 75% of the aggregate of the
total number of Board meetings held while he was a director and the
total number of meetings held while he was a director by all
committees of the Board on which he served. Nonmanagement directors
of the Company received $2,000 for attending a regularly scheduled
Board meeting, $500 for specially called Board meetings (excluding
telephonic meetings) and $500 for attending committee meetings not
held in conjunction with Board meetings. In addition, non-payroll
directors received an annual retainer of $13,000.
5
<PAGE>
The Company has a standing Audit Committee which currently
consists of George E. Bryan, Calvin G. Germroth, and J. Craig Hott.
The Audit Committee met four times since last year's annual meeting.
The Audit Committee recommends to the Board the independent audit firm
to be employed by the Company and meets with the independent auditor
to discuss quality of management and financial, accounting and
internal audit procedures. The Audit Committee also monitors the
Company's compliance with applicable requirements of the National
Association of Securities Dealers, Inc. relating to independent
directors, and reviews, at least annually, all related party
transactions and potential conflicts of interest, recommending
appropriate action as needed.
The Company has a standing Nominating Committee which
currently consists of Stephen W. Custer, Calvin G. Germroth and
William D. Wampler. The Nominating Committee met once since last
year's annual meeting. The Nominating Committee proposes to the Board
a slate of director nominees and terms of office for such nominees for
the Board to consider in recommending to the Company's shareholders
director nominees for election. The Nominating Committee also
proposes nominees for Board appointment as vacancies occur and for
Board committee assignments and vacancies.
The Company has a standing Executive Compensation Committee
which currently consists of Charles L. Campbell, William H.
Groseclose, and Herman D. Mason. The Executive Compensation Committee
met once since last year's annual meeting. The Executive Compensation
Committee determines the annual salary, bonus and other benefits of
the Chief Executive Officer and makes decisions relating to awards to
executive officers and other key personnel pursuant to the Company's
Long-Term Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, the Executive Compensation
Committee consisted of Herman D. Mason, Charles L. Campbell and
Charles W. Wampler, Jr. As described in the following section
entitled "Certain Relationships and Related Transactions," Messrs.
Campbell and Wampler are contract growers for the Company.
Additionally, Messrs. Mason and Wampler were considered employed by
the Company until their resignation in February, 1994.
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.
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 June 29,
1996, and (ii) amounts paid to entities related to directors which
were contract growers if such payments exceeded five percent of such
entities' gross revenues for such activity during fiscal year ended
June 29, 1996. 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 $ 85,897
J. Craig Hott
Hott's Farming, Inc. $ 234,429
James L. Keeler
Gregory Keeler, his son $ 181,290
Charles W. Wampler, Jr.
C. W. Wampler & Sons $ 181,943
6
<PAGE>
William D. Wampler
May Meadows Farm, Inc. $ 151,296
C. W. Wampler & Sons 181,943
During fiscal year ended June 29, 1996, the Company
purchased, either directly or through third-party suppliers, $341,903
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 companies in the area.
During fiscal year ended June 29, 1996, the Company paid
$4,095 to Custer Associates, Inc., a consulting firm owned by
Stephen W. Custer, which assisted with the Company-wide quality
control program. Also during the past fiscal year, the Company's
subsidiary Wampler Foods, Inc. sold a parcel of real estate containing
approximately 43 acres located in Shenandoah County, Virginia to V.
Eugene Misner for the price of $89,225. This was the same price paid
by Wampler Foods, Inc. in acquiring the property approximately one
year earlier. The terms of both transactions 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16 of the Securities Exchange Act of 1934, the
Company's directors, executive officers and beneficial owners of more
than 10% of the outstanding common stock are required to file reports
with the Securities and Exchange Commission concerning their ownership
of and transactions in common stock. Based on copies of those reports
and related information furnished to the Company, the Company believes
that all such filing requirements were complied with in a timely
manner for the fiscal year ended June 29, 1996, except that, due to an
administrative error, the granting of options pursuant to the
Company's Long-Term Incentive Plan was not reported on a timely basis.
The options were granted to James L. Keeler, Delbert L. Seitz, Jane T.
Brookshire, James L. Mason, V. Eugene Misner, Henry L. Holler and John
J. Broaddus. The granting of the options was reported on the next
Form 4 filing following the discovery of the error.
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-Term Incentive 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, both annual and long-term, which enhance the value of
shareholders' investment in the 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 with other companies
within Virginia and the industry. Companies considered in determining
executive compensation are not the same as the peer group reflected in
the Stock Price Performance Graph due to the Committee's belief that,
unlike the performance of stock traded on a national market, executive
compensation should be evaluated in comparison with similar companies
in the same geographic area. Periodic increases in base salary are
based on evaluations of past and current performance, competitive
market conditions and Company performance.
With respect to the Chief Executive Officer, the Committee
believes that a significant portion of annual compensation should be
tied directly to Company performance, and that adjustments to base
salary should be consistent with Company-wide salary adjustments.
Accordingly, the Committee has historically adjusted the base salary
of the Chief Executive Officer according to the average percentage
increase for all Company employees.
7
<PAGE>
This holds true for 1997 when, because of the challenges
presented by record grain prices and other external forces, executive
base salaries remained at the same level as the previous year
throughout the Company.
Cash Bonus
The Company's Incentive Bonus Program focuses on 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 Resources
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.
Thus, bonuses comprise the part of management compensation that is "at
risk" based on the Company's annual performance. As borne out in the
eight-year history of the Company's Incentive Bonus Program, for
years, such as 1996, in which the Company does not have a strong
return on equity, a significant portion of management's annual
compensation is reduced.
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, has 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.
Due to special circumstances in each of 1992, 1993 and 1994, the
option price was established above the market price in those 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 ($2.25 as
adjusted for the 3-for-2 stock split on May 12, 1995) was more
reflective of the true value of the Company's shares at that time. In
1993, the Company completed a public offering of common stock priced
at $22 ($14.67 split-effected) in February and the Committee
established the option price in July at $22 ($14.67 split-effected),
even though the market price on the grant date was $5 lower, or $17
($11.33 split-effected) per share. In 1994, the Company was the
target of an unsolicited tender offer by Tyson Foods, Inc. of $30 per
share; consequently the Committee established the option price at $30
($20 split-effected) instead of the 1994 year-end trading value of
$25.50 ($17 split-effected). In 1995, the Committee returned to its
original practice, establishing the exercise price of $15, based on
the current market price after the 3-for-2 stock split on May 12, 1995
of $14.375. Options granted in 1996 have an exercise price of
$14.125, the market price of the Company's stock at the end of the
fiscal year.
In 1995, the Company again engaged the services of a
compensation consulting firm to review the Company's Long-Term
Incentive Plan. The consultants made several recommendations
regarding the level of options granted, the term of the options and
whether the Company should grant incentive stock options (ISOs) or
non-qualified options as in the past. The granting of ISOs would
permit executives to defer the income tax consequences of their
options with no impact on the Company's earnings. The consultants
also recommended that the Company implement a supplemental employee
retirement plan (SERP) in order for executive compensation to be more
competitive with companies of similar size.
The Company deferred implementation of the SERP recommended
by the consultant. However, the Company accepted the recommendation,
beginning in fiscal year 1995, to grant options with a term of ten
years rather than five years as in the past, and to grant ISOs to the
extent permitted by the current Internal Revenue Code, neither of
which recommendations affect the Company's earnings.
8
<PAGE>
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 due to earnings 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 in one or more installments 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.
During the past fiscal year, the Company established the
1995 Nonqualified Deferred Compensation Plan (Nonqualified Plan). The
purpose of this nonqualified, unfunded plan is to permit certain
members of management and other employees to supplement their
retirement savings beyond the limits imposed by federal tax law on the
Company's Profit Sharing and Salary Savings Plan and Trust (Profit
Sharing Plan). Pursuant to the Nonqualified Plan, employees may elect
to defer a portion of their salary and bonus until their retirement or
other termination. The Company does not contribute to the Plan.
However, to the extent that deferrals under the Nonqualified Plan
reduce a participant's compensation base for purposes of the Company's
contribution to the Profit Sharing Plan, the Company will credit to
the participant's Nonqualified Plan account an amount equal to the
difference between the Company's actual contribution to the Profit
Sharing Plan and the amount which the Company would have contributed
had the participant not elected to defer an additional amount under
the Nonqualified Plan.
Chief Executive Officer Compensation
Due to the financial pressures on the Company caused by
record grain prices and other external forces affecting the industry
as a whole, Mr. Keeler's base salary for the current year remains
unchanged from the previous year. Also, as described in the
discussion of cash bonus above, like all executives, Mr. Keeler's
bonus is a function of the Company's ROE. While Mr. Keeler is
entitled to a guaranteed minimum bonus, he has elected not to receive
a bonus for 1996. Finally, the number of stock options awarded to Mr.
Keeler under the Long-Term Incentive Plan remained at the same level
as for the past year.
Limitation on Deductibility of Certain Compensation for Federal Income
Tax Purposes
Section 162(m) of the Internal Revenue Code, enacted as part
of the Omnibus Budget Reconciliation Act of 1993, limits the annual
compensation deduction for federal income tax purposes of publicly
held companies, such as WLR Foods, Inc., to $1 million for
compensation paid to each of its chief executive officer and its four
highest compensated executive officers other than the chief executive
officer. However, this limit does not apply to "performance-based"
compensation as defined in that section and the regulations
thereunder.
The Company does not anticipate that the total annual
compensation paid to any executive, including the Chief Executive
Officer, will exceed the $1 million limit, although an executive's
compensation could exceed such limit if the executive were to exercise
all outstanding stock options. Moreover, options granted pursuant to
the Company's Long-Term Incentive Plan currently qualify as
performance-based compensation, and are therefore not subject to the
limitation, because such options are based on a stock price that is no
less than fair market value at the time of the grant. Consequently
the amount of compensation an executive can receive pursuant to the
Long-Term Incentive Plan is based solely on subsequent increases in
the value of the stock. Accordingly, Section 162(m) is expected to
have no impact on the Company during the current fiscal year.
Herman D. Mason
Charles L. Campbell
William H. Groseclose
Executive Compensation Committee Members
SUMMARY COMPENSATION
The Summary Compensation Table below contains information
concerning annual and long-term compensation provided to the Company's
Chief Executive Officer and the other four most highly compensated
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executive officers of the Company for all services rendered to the
Company and its subsidiaries for the fiscal years ending June 29,
1996, July 1, 1995 and July 2, 1994.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
_________________________________________________________________________________________________
Long Term Other
Name and Annual Compensation Compensation<F1> Compensation<F2>
Principal Position Year Salary ($) Bonus ($) Options ($)
_________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
James L. Keeler 95-96 $256,248 $ 0 60,000 $ 4,295
Chief Executive 94-95 249,998 116,693 60,000 192,425
Officer & President 93-94 245,096 159,458 50,625 203,651
James L. Mason 95-96 $200,000 $ 0 30,000 $ 3,263
President, 94-95 181,866 57,861 30,000 4,711
Wampler Foods 93-94 172,221 75,958 21,750 6,042
V. Eugene Misner 95-96 $171,500 $ 0 11,250 $ 4,845
Vice President 94-95 170,311 43,348 11,250 4,579
Live Production 93-94 163,882 66,638 11,250 5,929
Wampler Foods
Henry L. Holler 95-96 $171,500 $ 0 11,250 $ 4,579
Vice President 94-95 138,321 43,348 11,250 4,481
Sales & Marketing 93-94 133,099 48,107 11,250 4,951
Wampler Foods
John J. Broaddus 95-96 $151,750 $ 0 17,500 $ 4,113
Executive Vice- 94-95 139,819 27,193 11,250 5,107
President 93-94 137,034 37,147 11,250 5,274
Wampler Foods
_____________________________
</TABLE>
[FN]
<F1> Options granted for the fiscal year ending July 2, 1994 have been
adjusted to give effect to the 3-for-2 stock split on May 12,
1995.
<F2> 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. Company
contributions to the Profit Sharing and Salary Savings Plan on
behalf of the named Executives were $3,729 for Mr. Keeler, $2,695
for Mr. Mason, $4,231 for Mr. Misner, $3,967 for Mr. Holler, and
$3,579 for Mr. Broaddus. The Company paid life insurance
premiums of $566 for Mr. Keeler, $568 for Mr. Mason and $614 for
Mr. Misner, $612 for Mr. Holler and $534 for Mr. Broaddus.
OPTION GRANTS IN LAST FISCAL YEAR
____________________________________________________________________________
% of Total
Options Exercise
Options Granted to or Base
Granted Employee in Price Expiration Grant Date
(#) Fiscal Year $/Share Date Present Value<F1>
____________________________________________________________________________
James L. Keeler 60,000 1.5% $14.125 06/29/06 $340,800
James L. Mason 30,000 15.7% $14.125 06/29/06 $170,400
John J. Broaddus 17,500 9.2% $14.125 06/29/06 $ 99,400
V. Eugene Misner 11,250 5.9% $14.125 06/29/06 $ 63,900
Henry L. Holler 11,250 5.9% $14.125 06/29/06 $ 63,900
______________________________
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<PAGE>
[FN]
<F1>The values shown reflect a standard application of the Black-
Scholes Option Pricing Model, assuming a risk-free rate of return
of 5.6%, an annualized volatility factor of 43% and an annualized
dividend rate as of the grant date of 24 cents per share. Values
shown do not take into account risk factors such as
nontransferability and restrictions on exerciseability. The
Black-Scholes Model is a commonly utilized model for valuing
options which assumes that the possibilities of future stock
returns (dividends plus stock value appreciation) resemble a
bell shaped curve. The model applies a statistical analysis to
the Company's historical data to project the value of the options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Value of
Number of Unexercised
Unexercised In-The-Money
Options at Options<F2> at
Fiscal<F1> Fiscal
Shares Year-End (#) Year-End ($)
Acquired<F1> Value Exercisable/ Exercisable/
Name On Exercise(#) Realized($) Unexercisable Unexercisable
______________________________________________________________________
James L. Keeler 50,625 $78,574 155,000/116,875 $111,831/0
James L. Mason 21,750 $33,758 68,000/57,250 $ 48,046/0
John J. Broaddus 0 $ 0 33,750/28,750 $ 24,851/0
V. Eugene Misner 21,750 $38,227 54,750/22,500 $ 48,046/0
Henry L. Holler 11,250 $23,770 33,750/22,500 $ 24,851/0
____________________
[FN]
<F1> Adjusted to give effect to the May 12, 1995 3-for-2 stock split.
<F2> Represents the difference between the exercise price of the
option and $14.125, the average of the best bid and asked prices
of the Company's common stock as reported on the NASDAQ/National
Market System on June 28, 1996.
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 remains unchanged at
$256,248 and his bonus factor, discussed under "Cash Bonus" on page 11
is 4.0, also the same as last year. Although Mr. Keeler is guaranteed
a bonus of $25,000, in light of the challenges currently facing the
Company, such as the record high grain prices, Mr. Keeler felt it
appropriate to forego his guaranteed bonus for the past fiscal year.
Mr. Keeler's deferred compensation allocation will be calculated at
1.5% of the increase in the Company's book value over each preceding
year, as explained previously under "Deferred Compensation." The
Company has also agreed to provide group health insurance coverage to
Mr. Keeler and his wife for the remainder of their lives, provided he
does not retire before age 65. Mr. Keeler's perquisites and benefits
are consistent with those provided to the Company's senior management.
The Company has entered into severance agreements with each
of James L. Keeler, James L. Mason, V. Eugene Misner, Henry L. Holler
and John J. Broaddus (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, constituted 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
11
<PAGE>
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 a reorganization,
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, Mason
and Broaddus 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 he resigns 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 and Holler
are similar to those described above for Messrs. Mason and Broaddus
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 this 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 29, 1991. 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.
[Insert Graph Here]
12
<PAGE>
6/91 6/92 6/93 6/94 6/95 6/96
Composite 100 89 120 133 140 153
S&P 500 100 113 129 131 165 208
WLRF 100 82 98 150 128 127
PROPOSAL TWO: APPOINTMENT OF INDEPENDENT AUDITORS
KPMG Peat Marwick LLP of Richmond, Virginia, were auditors
for the fiscal year ended June 29, 1996, and are being recommended to
the Company's shareholders for appointment as auditors for the fiscal
year ending June 28, 1997. A representative of KPMG Peat Marwick LLP
is expected to attend the Annual Meeting and will have an opportunity
to make a statement or respond to appropriate questions from
shareholders.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL TWO.
SHAREHOLDER PROPOSALS
Shareholders are reminded that proposals of shareholders
intended to be presented at the Company's 1997 annual meeting must be
received by the Secretary of the Company, at its principal executive
offices, P. O. Box 7000, Broadway, Virginia 22815-7000, for inclusion
in its proxy statement relating to that meeting, by May 31, 1997.
Upon written request to the Secretary, at the address given on page
one, the Company shall provide shareholders, without charge, a copy of
the Company's annual report on Form 10-K for fiscal year ended
June 29, 1996.
By Order of the Board of Directors
Robert T. Ritter
Secretary
September 30, 1996
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