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 June 28, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
P.O. Box 7000, Broadway, Virginia 22815
(Address of principal executive offices)
Registrant's telephone number, including area code
540-896-7001
Securities registered pursuant Name of exchange on which
to Section 12(b) of the Act: registered
N/A N/A
Securitis registered pursuant to Section 12(g) of the Act:
Common Stock - no par value
(Title of Class)
Indicate 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. ________
The aggregate value of the voting stock held by non-affiliates of the
registrant as of September 22, 1997 was approximately $126,486,468.
As of that date 16,282,050 shares of the registrant's common stock
were issued and outstanding.
<PAGE>
PART I
Item 1. BUSINESS.
General
WLR Foods, Inc. (with its subsidiaries, "WLR" or the "Company")
was incorporated in the Commonwealth of Virginia in 1984. WLR is a
leading producer, processor and marketer of poultry-based products,
including fresh, frozen and further processed chicken and turkey. The
Company markets products under its Wampler Foods brand trademark and
under various private labels to customers in the retail, foodservice
and institutional markets, as well as to export customers in more than
64 countries. In 1997, WLR was ranked the second largest turkey
producer by Turkey World magazine, the eighth largest further
processor of poultry by Meat & Poultry magazine and the fourteenth
largest chicken producer by Broiler Industry. Company sales for
fiscal 1997 were $1.014 billion, including approximately $400
million of chicken products and $490 million of turkey products, and
representing approximately 565 million pounds of chicken and 530
million pounds of turkey. Remaining sales were comprised of feed,
ice, nonpoultry distribution and by-product sales.
The Company markets a full line of chicken and turkey products,
including individually packaged fresh and frozen whole birds, fresh
and frozen bulk parts, fresh and frozen tray packs of individual parts
and a large assortment of further processed products. By offering a
broad array of products, the Company is able to shift production among
whole birds, parts and further processed products in response to
changes in customer demands and product prices. WLR is also actively
expanding its offering of further processed products, which offer
consumers added convenience and taste while generating higher margins
for WLR, and for which grain costs represent a smaller percentage of
overall production cost. Further processed products include a variety
of salads, sliced luncheon meats, turkey burgers and sausage, ground
turkey and chicken and various fully cooked breast products.
WLR markets branded, as well as, private label poultry products
to retailers, fast food operators, foodservice and institutional
customers primarily in the eastern United States, as well as to
customers in the upper Midwest and California. The Company is
positioning itself as a full-service supplier to these customers
for poultry-based products, offering a broad assortment of branded
and private label products across multiple price points. In addition,
WLR continues to expand its export sales, which have grown from 4%
of total Company sales in 1990 to 10% of sales in 1997.
The Company is vertically integrated and controls the growing of
its poultry, and the processing, preparation, packaging and marketing
of its products. Such integration enables WLR to ensure a
consistently high degree of product quality, and to adjust its product
mix to changes in the prices of products, changes in customer
requirements and to geographic imbalances in supply. As an integrated
producer, the Company also has opportunities to reduce operating
costs, improve operating efficiency and deliver a higher yield of
harvestable birds to its processing plants through improvements in
processing facilities, automation and the active monitoring and
management of its breeder stock, hatching and growing conditions and
feed components.
In addition to its poultry operations, the Company operates a
cold storage and ice manufacturing and distribution business through
its Cassco Ice & Cold Storage, Inc. ("Cassco") operating subsidiary.
Cassco is a leading ice producer and distributor in the mid-Atlantic
region of the United States. In 1997, Cassco generated sales of $19.2
million.
On July 25, 1997, the Company sold its 65% interest in May Supply
Company, Inc., a wholesale distributor of plumbing supplies and
equipment.
<PAGE>
Poultry Production
WLR Foods' primary operations include the breeding, hatching,
grow-out and processing of turkeys and chickens. For fiscal 1997, WLR
Foods produced approximately 561 million pounds of dressed turkey and
622 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, providing approximately 53% of the Company's poult supply.
The balance of the Company's poults are purchased from Cuddy Farms,
Inc. (not affiliated with WLR Foods). 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, which are in turn
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 200 breeder growers who
grow approximately one-half of WLR Foods' turkey, and all of WLR
Foods' chicken, breeder flocks.
In February, 1997, the Board of Directors approved the investment
of $8 million for the construction of a new hatchery at the Goldsboro,
North Carolina facility and the implementation of a second shift. The
Company is in the process of completing the hatchery and anticipates
that it will be fully operational before the end of the calendar year.
A second shift at the adjacent processing facility will permit the
Company to leverage its fixed plant expenses by spreading such
expenses over a greater volume of product, thereby minimizing per unit
cost. The expansion has been anticipated by the Company since it
acquired the facility in September 1995.
After hatching and vaccination, poults and chicks are transported
to one of WLR Foods' approximately 886 contract growers located in
Virginia, West Virginia, Pennsylvania, Maryland, North Carolina and
South Carolina who supply labor and housing to raise the turkeys and
chickens to maturity. WLR Foods supplies feed primarily from company-
owned feedmills and provides grower support through WLR Foods'
technicians and veterinarians.
Grow-out and breeder farms provide WLR Foods with more than 57
million square feet of growing facilities. These farms typically are
grower-owned and operate under contract with WLR Foods, providing
facilities, utilities and labor. Contract growers are compensated on
a cost-based formula and several incentive-based formulas.
Approximately 99% 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
it primary feed ingredients on the open market. These ingredients
consist primarily of corn and soybean meal. Because the quality and
composition of feed is critical to the feed conversion rate, WLR Foods
formulates and manufactures a majority of its feed at one of its five
feedmills. WLR Foods has an annual feed manufacturing capacity of
approximately 2 million tons and anticipates no difficulty in meeting
the Company's feed requirements in the future.
Once the turkeys and chickens reach marketable weight, they are
transported in WLR Foods' trucks to one of its eight poultry
processing plants. These plants utilize modern, highly automated
equipment to process and package the turkeys and chickens for sale or
preparation for further processing. Some further processing, such as
deboning and skinning, is also conducted in a number of these
processing plants. Additional further processing, including slicing,
grinding, marinating, spicing and cooking to produce delicatessen
products, frankfurters, meat salads, ground turkey and chicken, and
food service products is conducted at the Company's two further
processing plants.
Distribution, Public Refrigerated Warehousing, Ice and Other
WLR Foods' distribution business includes fresh poultry, beef,
and other meat products purchased from third parties for resale, along
with certain products produced by the Company. These operations are
conducted within a radius of approximately 75 miles of WLR Foods'
further processing facility in Franconia, Pennsylvania. Cassco
manufactures and distributes ice in the mid-Atlantic region and
operates five public refrigerated warehouses in Virginia, West
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Virginia and North Carolina. 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 approximates sales revenues from WLR Foods'
products for the last three fiscal years.
Fiscal 1997 Fiscal 1996 Fiscal 1995
----------- ----------- -----------
(Dollars in Millions)
Chicken, fresh and frozen $400 $380 $310
Turkey, fresh and frozen 490 485 480
Ice/Warehousing 19 19 18
Distribution, Feed and Other 105 114 101
---- ---- ----
Total Net Sales $1,014 $998 $909
====== ==== ====
Competition
The poultry industry is 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 chicken products in the highly competitive
eastern sections of the United States.
Seasonality
In general, the Company's sales are relatively stable throughout
the year. However demand for chicken and further processed products
is typically strongest in May through August while demand for turkey
products is typically strongest in September through December.
Management responds to this seasonality by attempting to manage
operating volumes and inventory levels, and the associated working
capital requirements, to meet expected demand. As a consequence, the
Company's short-term borrowings typically peak in the third and fourth
quarters of each fiscal year, reflecting the buildup of turkey product
inventories.
Trademarks and Patents
As of August 1996, the Company's Wampler Foods subsidiary began
marketing products under the trademarks WAMPLER FOODS and WAMPLER
FOODS and design, which have applications for registration pending at
the U.S. Patent and Trademark Office. Wampler Foods continues to
market its products under the trademarks WAMPLER-LONGACRE and design,
TRIM FREE, COLONY FARMS, DINOSAUR WINGS, POULTRY PARTNERS, POULTRY
PARTNERSHIP, KAFETERIA KIT and THE DELI ROAST COLLECTION and design,
all of which are federally registered trademarks. Products are also
sold under the LEAN LITE DELI, ROUND HILL, FARMER'S CHOICE and VALLEY
PRIDE marks. Following the acquisition of Cuddy Foods, Wampler Foods
obtained the right to market products under various marks using the
CUDDY name. Wampler Foods ceased packing products under the CUDDY
marks as of July 1, 1997. Wampler Foods continues to market its
export and foreign military sales under the COLONEL ROCKINGHAM design
and ROCKINGHAM trademarks, as well as the WAMPLER FOODS trademark.
Cassco distributes its products under the federally registered
trademark CASSCO.
Wampler Foods holds a patent for pasteurized salads and a patent
for processing turkey.
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 less than $0.5 million of governmental
contracts outstanding as of June 28, 1997, compared to approximately
$0.1 million as of June 29, 1996.
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Foreign Sales
WLR Foods' export sales constituted approximately 10% of its
total annual sales in each of fiscal 1997 and 1996, compared to 8% for
fiscal year 1995. Wampler Foods has a full-time staffed export sales
office which coordinates export sales efforts on behalf of WLR Foods.
Export sales originate from that office and use independent brokers as
needed. Sales are made to customers in over 64 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 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.
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 products. 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 grains are commodities and, as such, are
subject to volatile price changes caused by weather, size of harvest,
changes in demand, 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. The Company uses futures contracts
and forward purchases to hedge the risk of fluctuating grain prices.
The results of closed hedging transactions become part of the cost of
the related inventory items, and gains and losses in the market value
of open hedging contracts are reported as an adjustment to the
carrying amount of the hedged item.
Environmental and Other Regulatory Compliance
WLR Foods' facilities and operations are subject to the
regulatory jurisdiction of various federal agencies, including the
Food and Drug Administration, Department of Agriculture, Environmental
Protection Agency, Occupational Safety and Health Administration, and
of corresponding state agencies in Virginia, West Virginia, North
Carolina and Pennsylvania. All environmental permits, such as air,
water and solid waste disposal permits, are issued by appropriate
state agencies.
A total of seven environmental permits are held by Wampler
Foods's Virginia facilities, all of which were issued by the Virginia
Department of Environmental Quality. The Hinton turkey processing
facility holds an air permit which regulates certain combustion
equipment and a water permit which regulates the treatment of process
wastewater. The Harrisonburg turkey processing facility holds a water
permit requiring pretreatment of its process wastewater to meet
certain effluent standards before discharging into the regional sewer
system. Wampler Foods' Timberville chicken processing and protein
conversion facility holds a water permit which regulates the discharge
of process wastewater and an air permit which regulates the operation
of its protein conversion facility, as well as certain combustion
equipment. The chicken processing facility in Alma/Stanley holds one
water permit which regulates the discharge of process wastewater.
Finally, the Broadway feedmill holds an air permit which was issued
primarily for the control and abatement of dust. In addition to the
seven environmental permits held by Wampler Foods, WLR Foods holds a
Virginia Pollution Abatement permit which allows Wampler Foods'
Virginia facilities to apply to land in Virginia certain wastewater
biosolids generated by the facilities' wastewater treatment systems.
In West Virginia, Wampler Foods' Moorefield facilities hold four
environmental permits, all of which were issued by the West Virginia
Department of Commerce, Labor & Environmental Resources. The chicken
processing and protein conversion facility holds a water permit which
regulates the discharge of process wastewater, an air permit which
regulates the operation of the Company's protein conversion facility,
and a sludge management permit regulating the land application in West
Virginia of certain wastewater biosolids generated at the Moorefield
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facilities wastewater treatment works. The Moorefield feedmill holds
one air permit which was issued primarily for the control and
abatement of dust.
Wampler Foods' North Carolina facilities hold a total of thirteen
environmental permits, all of which were issued by the North Carolina
Department of Environment, Health & Natural Resources. The Monroe
turkey processing plant holds three permits: an industrial wastewater
discharge permit which requires process wastewater to be pretreated
prior to discharge to a regional sewer system, a stormwater permit
which regulates stormwater discharges, and an air permit which
regulates boiler emissions. The Marshville turkey processing plant
holds an industrial wastewater discharge permit and stormwater permit
which are similar to the counterpart permits held by the Monroe
facility. In addition, the Marshville facility holds a stormwater
permit which regulates cooling water and boiler blowdown discharges.
The Wingate feedmill holds a stormwater permit which regulates
stormwater discharges and an air permit which regulates emissions from
boilers, bagfilters, and related equipment. The Goldsboro feedmill
and Jones County grain elevator each hold an air permit issued for the
control and abatement of dust. Finally, the Goldsboro chicken
processing facility holds three environmental permits, a general
stormwater permit, an industrial user pretreatment permit providing
for the pretreatment of certain wastewater before discharge to the
City of Goldsboro Control Authority, and an air permit regulating
certain combustion equipment.
Pennsylvania facilities owned by Wampler Foods hold a total of
six environmental permits. The Franconia turkey processing plant
holds five permits: two water permits for the treatment of process
wastewater, two air permits to regulate operation of certain
combustion and incineration equipment, and one municipal solid waste
disposal permit for the disposal of incinerator ash. The New Oxford
turkey processing facility holds one air permit which regulates
combustion equipment. All of the Pennsylvania permits were issued by
the Pennsylvania Department of Environmental Resources.
In addition to the foregoing environmental permits, and where not
otherwise addressed above, all facilities have taken steps to ensure
compliance with stormwater regulations. Where applicable, facilities
have applied for the necessary group, individual or general storm
water permit in accordance with state and federal guidelines.
Further, each facility has registered aboveground and underground
storage tanks in accordance with relevant state and federal
regulations.
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 materially adverse effect in the future.
Employees
WLR Foods employed over 8,500 persons as of June 28, 1997, none
of whom were covered by a collective bargaining agreement.
Item 2. PROPERTIES.
WLR Foods' eight poultry processing facilities and two further
processing plants are located in Virginia, West Virginia, Pennsylvania
and North Carolina, and have a total slaughter capacity of
approximately 650,000 turkeys per week (single shift) and 3.3 million
chickens per week (double shift, except in the Goldsboro plant, which
currently operates a single shift). During the coming winter the
Goldsboro plant will move to a double shift, which will add 0.3
million chickens per week to the Company's capacity. WLR Foods owns
and operates five feedmills with a production capacity of approximately
2 million tons of finished feed per year; a turkey hatchery with a
production capacity of approximately 360,000 poults per week and three
chicken hatcheries with a production capacity of approximately 3.5
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. The Company's assets are depreciated on a
straight-line basis, based on the following asset lives:
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Land Improvements 10-20 years
Buildings & Improvements 5-20 years
Machinery & Equipment 3-17 years
Transportation Equipment 3-6 years
Cassco operates public refrigerated facilities at five locations
with approximately 9.2 million cubic feet. These facilities are
located close to major food processors in Virginia, West Virginia and
North Carolina. Cassco also operates seven ice manufacturing
facilities in Virginia, West Virginia and Washington, D.C. with a
capacity of approximately 1,200 tons per day.
Item 3. LEGAL PROCEEDINGS.
On March 8, 1996, suit was filed against WLR Foods and its wholly
owned subsidiary, WLR Poultry Products, Inc., New Hope Feeds, Inc. and
Equipment Truck Leasing, Inc. (collectively, "New Hope") and the
principal shareholders of New Hope, by Case Foods, Inc. and its wholly
owned subsidiary, Case Farms of North Carolina, Inc. (collectively,
"Case"). The suit, filed in the Burke County, North Carolina, General
Court of Justice, Superior Court Division, arises from the
September 29, 1995 acquisition by the Company of the chicken
processing plant, live production assets, and inventory of New Hope
(the "Acquisition").
The complaint maintains that the Acquisition was in violation of
a right of first refusal previously granted by New Hope to Case. The
suit also maintains that the Acquisition was in violation of a letter
of intent between New Hope and Case, and in contravention of certain
oral promises and representations claimed to have been made by New
Hope. In addition to breach of contract and other claims against New
Hope, the claims against WLR Foods and its subsidiary include
tortious interference with contract, tortious interference with
prospective advantage, and unfair and deceptive trade practices under
North Carolina law. The Complaint seeks monetary damages of an
unspecified amount from WLR Foods and New Hope, some of which are
requested to be trebled pursuant to North Carolina law.
The Company intends to defend vigorously against the claims made
by Case, and does not expect the litigation to have a material effect
on the Company or its financial statements. Moreover, in connection
with the Acquisition, the Company entered into an Indemnification
Agreement with New Hope, secured by a Stock Escrow Agreement, pursuant
to which New Hope is obligated to defend WLR Foods, and to indemnify
WLR Foods for certain liabilities arising from the Acquisition,
specifically including liabilities arising from this litigation. The
escrow account currently holds 318,332 shares of WLR Foods Common
Stock.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the shareholders of the Company
during the fourth quarter of the fiscal year ended June 28, 1997.
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 62 Chief Executive Officer since February
President 1988
Chief Executive Officer
James L. Mason <F1> 47 President of Wampler Foods since January
Executive Vice President 1994; previously, General Manager and
President President of Wampler-Longacre Turkey, Inc.
Wampler Foods, Inc. since April 1990
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Robert T. Ritter 46 Chief Financial Officer since June 1996;
Chief Financial previously, Private Investor and Financial
Officer Consultant; Controller and Treasurer of
Treasurer and Secretary American Cyanamid Co.
John J. Broaddus 47 Executive Vice President since June 1996;
Executive Vice President previously, Vice President of Wampler
Wampler Foods, Inc. Longacre, Inc. since 1994 and President
of Cassco since 1990
Jane T. Brookshire 51 Vice President of Human Resources since
Vice President of October 1993; previously, Director of
Human Resources Human Resources for WLR Foods
Ruth J. Mack 42 Executive Vice President of Sales and
Executive Vice President Marketing since May 1997; previously,
of Sales and Marketing Executive Vice President for Marketing and
Wampler Foods, Inc. Sales for Just Born, Inc., Bethlehem,
Pennsylvania from 1994 to 1997, and Director
of Marketing for Pepsi Cola Company from
1989 to 1994
Robert W. Lauffenberger 61 Special Assistant to the President and Chief
Special Assistant to the Executive Officer since May 1997; previously,
President and Chief President of Con Agra Turkey Company from 1994
Executive Officer to 1995, and President of Rocco Turkeys, Inc.
from 1988 to 1993
_______________
<FN>
<F1> James L. Mason is the son of Herman D. Mason, who is Vice Chairman of the
Company's Board.
</FN>
</TABLE>
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 12 to the Registrant's Consolidated
Financial Statements in the Annual Report, attached hereto as Exhibit
13.3. As of September 22, 1997, the approximate number of
shareholders of record was 4,000.
Item 6. SELECTED FINANCIAL DATA.
Selected financial data for each of the fiscal years in the ten-
year period ended June 28, 1997 is incorporated by reference to the
table entitled "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 schedule, is incorporated by reference to the
Consolidated Financial Statements and Notes thereto in the Annual
Report, attached hereto as Exhibit 13.3. The required financial
statement schedule is included on page 13 of this report.
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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.
PART III
Items 10 - 13 inclusive.
These items have been omitted in accordance with instructions to
Form 10-K Annual Report. The Registrant will file with the Commission
in September 1997, pursuant to Regulation 14A, a definitive proxy
statement that will involve the election of directors.
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 28, 1997, except that a Form 3
was not filed for Robert W. Lauffenburger on a timely basis upon his
becoming an executive officer of the Company. A Form 3 was filed
promptly upon discovery of the error.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits
Financial Statements
Consolidated Statements of Operations - Fiscal years ended
June 28, 1997, June 29, 1996 and July 1, 1995
Consolidated Balance Sheets - June 28, 1997 and June 29, 1996
Consolidated Statements of Shareholders' Equity - Fiscal years
ended June 28, 1997, June 29, 1996 and July 1, 1995
Consolidated Statements of Cash Flows - Fiscal years ended
June 28, 1997, June 29, 1996 and July 1, 1995
Notes to Consolidated Financial Statements - Fiscal years
ended June 28, 1997, June 29, 1996 and July 1, 1995
Financial Statement Schedules
Independent Auditors' Report on Schedules
Schedule II - Valuation and Qualifying Accounts
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.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June
28, 1997.
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(c) Exhibits
See Exhibit Index.
[The remainder of this page is intentionally left blank.]
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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 26, 1997
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 26, 1997
______/s/ Robert T. Ritter____________
Chief Financial Officer
Date: September 26, 1997
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 26, 1997.
Signature Title
____________________________________ Director
George E. Bryan*
____________________________________ Director
Charles L. Campbell*
____________________________________ Director
Stephen W. Custer*
____________________________________ Director
Calvin G. Germroth*
____________________________________ Director
William H. Groseclose*
____________________________________ Director
J. Craig Hott*
____/s/ James L. Keeler_____________ Director
James L. Keeler
____________________________________ Director
Herman D. Mason*
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____________________________________ Director
Charles W. Wampler, Jr.*
____________________________________ Director
William D. Wampler*
*By ______/s/ Robert T. Ritter_______
Robert T. Ritter, attorney-in-fact
11
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INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Shareholders
WLR Foods, Inc.:
Under date of August 20, 1997, we reported on the consolidated balance
sheets of WLR Foods, Inc. and subsidiaries as of June 28, 1997 and
June 29, 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the fiscal years in
the three-year period ended June 28, 1997, as contained in the June
28, 1997 annual report to shareholders. These consolidated financial
statements and our report thereon are incorporated by reference in the
June 28, 1997 annual report on Form 10-K of WLR Foods, Inc. In
connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement
schedule as listed in item 14(a) of this Form 10-K. This financial
statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein.
KPMG Peat Marwick LLP
Richmond, Virginia
August 20, 1997
12
<PAGE>
<TABLE>
WLR FOODS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED JUNE 28, 1997, JUNE 29, 1996 and JULY 1, 1995
(in thousands)
<CAPTION>
Description Balance at Charged to Charged to Balance
beginning cost and other at end of
of period expenses accounts period
<S> <C> <C> <C>
Fiscal year ended June 28, 1997
Allowance for Doubtful Accounts $708 $946 $104 $1,550
---- ---- ---- ------
Total $708 $946 $104 $1,550
==== ==== ==== ======
Fiscal year ended June 29, 1996
Allowance for Doubtful Accounts $613 $297 $202 $708
---- ---- ---- ----
Total $613 $297 $202 $708
==== ==== ==== ====
Fiscal year ended July 1, 1995
Allowance for Doubtful Accounts $360 $686 $433 $613
---- ---- ---- ----
Total $360 $686 $433 $613
==== ==== ==== ====
</TABLE>
13
<PAGE>
EXHIBIT INDEX
3.1 Articles of Incorporation of the Registrant, restated effective
May 30, 1995, incorporated by reference to Exhibit 3.1 of Form
10-K filed with the Securities and Exchange Commission on
October 2, 1995.
3.2 Bylaws of the Registrant, as amended on November 2, 1994,
incorporated by reference to Exhibit 3.2 of Form 10-K filed
with the Securities and Exchange Commission on October 2, 1995.
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 Note Agreement, dated May 1, 1991 with Minnesota Mutual Life
Insurance Company, Inc. and others, incorporated by reference
to Exhibit 4.4 of Form 10-K filed with the Securities and
Exchange Commission on September 27, 1991.
4.3 First Amendment, dated October 16, 1992, to the Note Agreement,
dated May 1, 1991 with Minnesota Mutual Life Insurance Company,
Inc., incorporated by reference to Exhibit 4.3 of Form 10-K
filed with the Securities and Exchange Commission on October 2,
1995.
4.4 Agreement of the Company, dated September 27, 1995, to furnish
a copy of the Second Amendment, dated June 1, 1995, to the Note
Agreement, dated May 1, 1991 with Minnesota Mutual Life
Insurance Company, Inc. to the Securities and Exchange
Commission upon its request, incorporated by reference to
Exhibit 4.4 of Form 10-K filed with the Securities and Exchange
Commission on October 2, 1995.
4.5 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.
4.6 Agreement of the Company, dated September 27, 1995, to furnish
a copy of the Note Agreement, dated June 1, 1995 with respect
to the issuance of certain long-term debt to the Securities and
Exchange Commission upon its request, incorporated by reference
to Exhibit 4.9 of Form 10-K filed with the Securities and
Exchange Commission on October 2, 1995.
4.7 Credit Agreement, dated as of January 1, 1997, with First Union
National Bank of Virginia and others, incorporated by reference
to Exhibit 4.1 of Form 10-Q filed with the Securities Exchange
Commission on May 13, 1997.
4.8 Loan Agreement, dated as of January 1, 1997, with First Union
National Bank of Virginia, incorporated by reference to Exhibit
4.2 of Form 10-Q filed with the Securities Exchange Commission
on May 13, 1997.
4.9 Agreement of the Company, dated May 6, 1997, to furnish a copy
of the Third Amendment, dated as of March 1, 1997, to the Note
Agreement dated May 1, 1991, with the Minnesota Mutual Life
Insurance Company and others, incorporated by reference to
Exhibit 4.3 of Form 10-Q filed with the Securities Exchange
Commission on May 13, 1997.
4.10 Agreement of the Company, dated May 6, 1997, to furnish a copy
of the First Amendment, dated as of March 1, 1997, to the Note
Agreement dated June 1, 1995, with respect to the issuance of
certain long-term debt, incorporated by reference to Exhibit
4.4 of Form 10-Q filed with the Securities Exchange Commission
on May 13, 1997.
9.1 Voting Trust Agreement, dated September 29, 1995, incorporated
by reference to Exhibit 9.2 of Form 10-K filed with the
Securities and Exchange Commission on September 29, 1996.
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.
14
<PAGE>
10.2 Amendment to Employment Agreement, dated February 4, 1994,
between the Registrant and James L. Keeler, incorporated by
reference to Exhibit 10.2 of Form 10-Q filed with the
Securities and Exchange Commission on February 15, 1994.
10.3 Amendment to Deferred Compensation Agreement, dated February 4,
1994, between the Registrant and James L. Keeler, incorporated
by reference to Exhibit 10.3 of Form 10-Q filed with the
Securities and Exchange Commission on February 15, 1994.
10.4 Amendment, dated June 27, 1995, to Employment Agreement dated
July 4, 1993, between the Registrant and James L. Keeler,
incorporated by reference to Exhibit 10.4 of Form 10-K filed
with the Securities and Exchange Commission on September 29,
1996.
10.5 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.
10.6 Long-Term Incentive Plan, as amended, incorporated by reference
to Exhibit 28 to Post-Effective Amendment Number One to
Form S-8 (No. 33-27037), filed with the Securities and Exchange
Commission on November 18, 1992.
10.7 Severance Agreement, dated February 4, 1994 between the
Registrant and James L. Keeler, incorporated by reference to
Exhibit 10.4 of Form 10-Q filed with the Securities and
Exchange Commission on February 15, 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.
10.9 Severance Agreement, dated June 20, 1996 between the Registrant
and John J. Broaddus, incorporated by reference to Exhibit 10.9
of Form 10-K filed with the SEC on September 29, 1996.
10.10 Deferred Compensation Agreement, dated February 4, 1994 between
the Registrant and Charles W. Wampler, Jr. incorporated by
reference to Exhibit 10.9 of Form 10-Q filed with the
Securities and Exchange Commission on February 15, 1994.
10.11 Deferred Compensation Agreement, dated February 4, 1994 between
the Registrant and Herman D. Mason incorporated by reference to
Exhibit 10.10 of Form 10-Q filed with the Securities and
Exchange Commission on February 15, 1994.
10.12 Amendment to Deferred Compensation Agreement, dated July 25,
1996 between the Registrant and Herman D. Mason, incorporated
by reference to Exhibit 10.13 of Form 10-K filed with the
Securities and Exchange Commission on September 29, 1996.
10.13 Deferred Compensation Agreement, dated February 4, 1994,
between the Registrant and George E. Bryan, incorporated by
reference to Exhibit 10.11 to Form 10-Q filed with the
Securities and Exchange Commission on February 15, 1994.
10.14 Deferred Compensation Agreement, dated February 4, 1994,
between the Registrant and William D. Wampler, incorporated by
reference to Exhibit 10.12 of Form 10-Q filed with the
Securities and Exchange Commission on February 15, 1994.
10.15 1995 Nonqualified Deferred Compensation Plan, incorporated by
reference to Exhibit 10.16 of Form 10-K filed with the SEC on
September 29, 1996.
10.16 Amendment No. One to 1995 Deferred Compensation Plan,
incorporated by reference to Exhibit 10.17 of Form 10-K filed
with the SEC on September 29, 1996.
10.17 Severance Agreement, dated June 20, 1996 between the Registrant
and Robert T. Ritter.
10.18 Severance Agreement, dated May 13, 1997 between the Registrant
and Jane T. Brookshire.
10.19 Severance Agreement, dated February 4, 1994 between the
Registrant and Henry L. Holler.
10.20 Trust Under WLR Foods, Inc. Nonqualified Deferred Compensation
Plan, incorporated by reference to Exhibit 10.18 of Form 10-K
filed with the SEC on September 29, 1996.
15
<PAGE>
10.21 Description of Plan to Issue Stock for Director Compensation,
incorporated by reference to Exhibit 10.19 of Form 10-K filed
with the SEC on September 29, 1996.
13.1 Financial highlights, from the Registrant's Annual Report to
Shareholders for the fiscal year ended June 28, 1997.
13.2 Management's Discussion and Analysis, from the Registrant's
Annual Report to Shareholders for the fiscal year ended June
28, 1997.
13.3 Consolidated Financial Statements and Notes to Consolidated
Financial Statements, from the Registrant's Annual Report to
Shareholders for the fiscal year ended June 28, 1997.
13.4 Independent Auditor Report on Consolidated Financial
Statements, from the Registrant's Annual Report to Shareholders
for the fiscal year ended June 28, 1997.
21 List of Subsidiaries of the Registrant.
23 Consent of Independent Certified Public Accountants.
24 Power of Attorney.
27 Financial Data Schedule.
16
<PAGE>
Exhibit 10.17
June 20, 1996
Mr. Robert T. Ritter
Chief Financial Officer of
WLR Foods, Inc.
WLR Foods, Inc.
Post Office Box 7000
Broadway, Virginia 22815
Dear Mr. Ritter:
WLR Foods, Inc., a Virginia corporation (the "Company"),
considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best
interests of the Company and its shareholders. In this connection,
the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a Change in Control (as defined
herein) may arise and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of
the Company and its shareholders. Accordingly, the Board of Directors
of the Company (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management to their assigned
duties without distraction in circumstances arising from the
possibility of a Change in Control of the Company. In particular, the
Board believes it important, should the Company or its shareholders
receive a proposal for transfer of control of the Company, that you be
able to assess and advise the Board whether such proposal would be in
the best interests of the Company and its shareholders and to take
such other action regarding such proposal as the Board might determine
to be appropriate, without being influenced by the uncertainties of
your own situation.
In order to induce you to remain in the employ of the Company,
this letter agreement ("Agreement"), which has been approved by the
Board, sets forth the severance benefits which the Company agrees will
be provided to you in the event your employment with the Company is
terminated subsequent to a Change in Control of the Company under the
circumstances described below.
1. Agreement to Provide Services; Right to Terminate.
(i) Except as otherwise provided in paragraph (ii) below,
the Company or you may terminate your employment at any time following
a Change in Control as defined herein, subject to the Company's
providing the benefits hereinafter specified in accordance with the
terms hereof.
(ii) In the event a Person (as hereinafter defined) makes an
offer which, if accepted by the Company and subsequently consummated,
would constitute a Change in Control, you agree that you will not
leave the employ of the Company (other than as a result of Disability
or upon Retirement, as such terms are hereinafter defined) and will
render the services contemplated in the recitals to this Agreement
until such Change in Control offer has been abandoned or terminated or
a Change in Control has occurred. For the purposes of this Agreement,
Retirement shall mean a termination of your employment by you on or
after you have reached age sixty-five (65) and have completed at least
five (5) years of service for the Company (including any service for a
predecessor of the Company where such prior service is recognized by
the Company for the purpose of awarding other benefits). For purposes
<PAGE>
Mr. Robert T. Ritter
June 20, 1996
Page 2
of this Section 1, "years of service" shall be defined as in the WLR
Profit Sharing and Salary Savings Plan.
2. Term of Agreement. This Agreement shall commence on the
date hereof and shall continue in effect until December 31, 1996;
provided, however, that commencing on January 1, 1997 and each January
1 thereafter, the term of this Agreement shall automatically be
extended for one (1) additional year unless at least ninety (90) days
prior to such January 1st date, the Company or you shall have given
notice that this Agreement shall not be extended; and provided,
further, that, notwithstanding the delivery of any such notice, this
Agreement shall continue in effect for a period of thirty-six (36)
months after a Change in Control, if such Change in Control shall have
occurred while this Agreement is in effect. Notwithstanding anything
in this Section 2 to the contrary, this Agreement shall terminate if
you or the Company terminate your employment prior to a Change in
Control of the Company.
3. Change in Control. For the purpose of this Agreement, a
"Change in Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13 (d) (3) or 14 (d) (2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty percent (20%) or more of
either the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that in no event may the
following acquisitions constitute a Change in Control: (a) any
acquisition directly from the Company (excluding an acquisition by
virtue of the exercise of a conversion privilege), (b) any acquisition
by the Company, (c) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (d) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the conditions
described in clauses (a), (b) and (c) of paragraph (iii) of this
Section 3 are satisfied, or (e) any sale or other disposition of all
or substantially all of the assets of the Company, if , following such
sale or other disposition, the conditions described in (1), (2) and
(3) of paragraph (iv) of this Section 3 are satisfied; or
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least seventy-five percent (75%) of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, unless, in each case
following such reorganization, merger or consolidation, (a) more than
sixty percent (60%) of, respectively, the then outstanding shares of
common stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
<PAGE>
Mr. Robert T. Ritter
June 20, 1996
Page 3
generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership
immediately prior to such reorganization, merger or consolidation, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (b) no Person (excluding the Company,
any employee benefit plan (or related trust) of the Company or a
corporation resulting from such reorganization, merger or
consolidation) beneficially owns, directly or indirectly, thirty-nine
percent (39%) or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors, and (c) at least a majority of
the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(iv) Approval by the shareholders of the Company of (a) a
complete liquidation or dissolution of the Company or (b) the sale or
other disposition of all or substantially all of the assets of the
Company, other than to a corporation with respect to which following
such sale or other disposition, (1) more than sixty percent (60%) of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case
may be, (2) no Person (excluding the Company and any employee benefit
plan (or related trust) of the Company or such corporation)
beneficially owns, directly or indirectly, thirty-nine percent (39%)
or more of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (3) at least a majority of
the members of the board of directors of such corporation were members
of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other
disposition of assets of the Company.
(v) Notwithstanding anything in the paragraphs (i) - (iv)
of this Section 3 to the contrary, no Change in Control shall be
deemed to have occurred for purposes of this Agreement by virtue of
any transaction which results in you, or a group of Persons which
includes you, acquiring, directly or indirectly, twenty percent (20%)
or more of the combined voting power of the Company's Voting
Securities.
4. Termination Following Change in Control. If any of the
events described in Section 3 hereof constituting a Change in Control
of the Company shall have occurred, you shall be entitled to the
benefits provided in Section 5 hereof upon the termination of your
employment with the Company within thirty-six (36) months after such
Change in Control, unless such termination is (a) because of your
death, (b) by the Company for Cause or Disability or (c) by you other
than for Good Reason (as all such capitalized terms are hereinafter
defined).
<PAGE>
Mr. Robert T. Ritter
June 20, 1996
Page 4
(i) Disability. Termination by the Company of your
employment based on "Disability" shall mean termination because of
your absence from your duties with the Company on a full time basis
for one hundred eighty (180) consecutive days as a result of your
incapacity due to physical or mental illness, unless within thirty
(30) days after Notice of Termination (as hereinafter defined) is
given to you following such absence, you shall have returned to the
full time performance of your duties.
(ii) Cause. Termination by the Company of your employment
for "Cause" shall mean termination upon (a) the willful and continued
failure by you to perform substantially your duties with the Company
(other than any such failure resulting from your incapacity due to
physical or mental illness) after a written demand for substantial
performance is delivered to you by the Chairman of the Board or
President of the Company which specifically identifies the manner(s)
in which such executive believes that you have not substantially
performed your duties, or (b) the willful engaging by you in illegal
conduct which is materially and demonstrably injurious to the Company.
For purposes of this paragraph (ii), no act, or failure to act, on
your part shall be considered "willful" unless done, or failed to be
done, by you in bad faith and without reasonable belief that your
action or omission was in, or not opposed to, the best interests of
the Company. Any act or failure to act based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the
advice of counsel for the Company shall be conclusively presumed to be
done, or omitted to be done, by you in good faith and in the best
interests of the Company. It is also expressly understood that your
attention to matters not directly related to the business of the
Company shall not provide a basis for termination for Cause so long as
the Board has approved your engagement in such activities.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered
to you a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board at
a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with
your counsel, to be heard before the Board), finding that in the good
faith opinion of the Board you were guilty of the conduct set forth
above in clauses (a) or (b) of this paragraph (ii) and specifying the
particulars thereof in detail.
(iii) Good Reason. Termination by you of your
employment for "Good Reason" shall mean termination based on:
(A) a determination by you, in your reasonable
judgment, that there has been an adverse change in your status or
position(s) as an executive officer of the Company as in effect
immediately prior to the Change in Control, including, without
limitation, any adverse change in your status or position as a result
of a diminution in your duties or responsibilities (other than, if
applicable, any such change directly attributable to the fact that the
Company is no longer publicly owned) or the assignment to you of any
duties or responsibilities which are inconsistent with such status or
position(s), or any removal of you from, or any failure to reappoint
or reelect you to, such positions(s) (except in connection with the
termination of your employment for Cause or Disability or as a result
of your death or by you other than for Good Reason);
(B) a reduction by the Company in your base salary as
in effect immediately prior to the Change in Control;
(C) the failure by the Company to continue in effect
any Plan (as hereinafter defined) in which you are participating at
the time of the Change in Control of the Company (or Plans providing
you with at least substantially similar benefits) other than as a
<PAGE>
Mr. Robert T. Ritter
June 20, 1996
Page 5
result of the normal expiration of any such Plan in accordance with
its terms as in effect at the time of the Change in Control, or the
taking of any action, or the failure to act, by the Company which
would adversely affect your continued participation in any of such
Plans on at least as favorable a basis to you as is the case on the
date of the Change in Control or which would materially reduce your
benefits in the future under any of such Plans or deprive you of any
material benefit enjoyed by you at the time of the Change in Control;
(D) the failure by the Company to provide and credit
you with the number of paid vacation days to which you are then
entitled in accordance with the Company's normal vacation policy as in
effect immediately prior to the Change in Control;
(E) the Company's requiring you to be based at any
office that is greater than thirty (30) miles from where your office
is located immediately prior to the Change in Control except for
required travel on the Company's business to an extent substantially
consistent with the business travel obligations which you undertook on
behalf of the Company prior to the Change in Control;
(F) the failure by the Company to obtain from any
Successor (as hereinafter defined) the assent to this Agreement
contemplated by Section 6 hereof;
(G) any purported termination by the Company of your
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (iv) below (and, if
applicable, paragraph (ii) above); and for purposes of this Agreement,
no such purported termination shall be effective; or
(H) any refusal by the Company to continue to allow
you to attend to matters or engage in activities not directly related
to the business of the Company which, prior to the Change in Control,
you were permitted by the Board to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any
compensation plan such as the Company Incentive Bonus Plan or any
employee benefit plan such as a thrift, pension, profit sharing,
medical, disability, accident, life insurance plan or a relocation
plan or policy or any other plan, program or policy of the Company
intended to benefit employees, except for the Company Restated Long-
Term Incentive Plan.
(iv) Notice of Termination. Any purported termination by
the Company or by you following a Change in Control shall be
communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon.
(v) Date of Termination. "Date of Termination" following a
Change in Control shall mean (a) if your employment is to be
terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty
(30) day period), (b) if your employment is to be terminated by the
Company for Cause or by you pursuant to Sections 4(iii)(F) or 6 hereof
or for any other Good Reason, the date specified in the Notice of
Termination, (c) if your employment is to be terminated by the Company
for any reason other than Cause, the date specified in the Notice of
Termination, which in no event shall be a date earlier than ninety
(90) days after the date on which a Notice of Termination is given,
<PAGE>
Mr. Robert T. Ritter
June 20, 1996
Page 6
unless an earlier date has been expressly agreed to by you in writing
either in advance of, or after, receiving such Notice of Termination,
or (d) if your employment is terminated on account of your death, the
day after your death. In the case of termination of your employment
by the Company for Cause, if you have not previously expressly agreed
in writing to the termination, then within thirty (30) days after
receipt by you of the Notice of Termination with respect thereto, you
may notify the Company that a dispute exists concerning the
termination, in which event the Date of Termination shall be the date
set either by mutual written agreement of the parties or by such court
having the matter before it. During the pendency of any such dispute,
the Company will continue to pay you your full compensation in effect
just prior to the time the Notice of Termination is given and until
the dispute is resolved. However, if such court issues a final and
non-appealable order finding that the Company had Cause to terminate
you then you must return all compensation paid to you after the Date
of Termination specified in the Notice of Termination previously
received by you.
5. Compensation Upon Termination or During Disability; Other
Agreements.
(i) During any period following a Change in Control of the
Company that you fail to perform your duties as a result of incapacity
due to physical or mental illness, you shall continue to receive your
base salary at the rate then in effect and any benefits or awards
under any Plans shall continue to accrue during such period, to the
extent not inconsistent with such Plans, until your employment is
terminated pursuant to and in accordance with paragraphs 4(iv) - 4(v)
hereof. Thereafter, your benefits shall be determined in accordance
with the Plans then in effect.
(ii) If your employment is terminated for Cause following a
Change in Control of the Company, the Company shall pay to you your
base salary through the Date of Termination at the rate in effect just
prior to the time a Notice of Termination is given plus any benefits
or awards (including both the cash and stock components) which
pursuant to the terms of any Plans have been earned or become payable,
but which have not yet been paid to you. Thereupon the Company shall
have no further obligations to you under this Agreement.
(iii) Subject to Section 8 hereof, if, within thirty-six
(36) months after a Change in Control of the Company has occurred,
your employment by the Company is terminated other than on account of
your death and is terminated (a) by the Company other than for Cause
or Disability or (b) by you for Good Reason, then the Company shall
pay to you, no later than the fifth (5th) day following the Date of
Termination, without regard to any contrary provisions of any Plan,
the following:
(A) your base salary through the Date of Termination
at the rate in effect just prior to the time a Notice of Termination
is given plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans have been
earned or become payable, but which have not yet been paid to you
(including amounts which previously had been deferred at your
request);
(B) an amount in cash equal to three times the sum of
(i) the higher of (a) your annual base salary on the Date of
Termination or (b) your annual base salary in effect immediately prior
to the Change in Control plus (ii) an amount equal to the average of
the bonuses awarded to you in each of the three previous years.
For the purposes of this Agreement, the term "base salary"
shall include any amounts deducted by the Company with respect to you
<PAGE>
Mr. Robert T. Ritter
June 20, 1996
Page 7
or for your account pursuant to Sections 125 and 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code").
(iv) If, within thirty-six (36) months after a Change in
Control of the Company has occurred, your employment by the Company is
terminated for any reason other than retirement, the Company shall pay
to you, on the date specified below, an amount ("Spread") in cash
equal to the Termination Fair Market Value (as hereinafter defined)
less the exercise price of all options which were granted to you
pursuant to the Company's Restated Long-Term Incentive Plan or any
Plan succeeding thereto, and which shall not become exercisable prior
to (a) the end of the one (1) year period immediately following the
Date of Termination if your employment is terminated on account of
your death, or (b) the end of the third (3rd) month following the Date
of Termination if your employment is terminated for any reason other
than death. The Company shall make such payment upon the fifth (5th)
day following such Date of Termination.
For the purposes of this Agreement, the "Termination Fair
Market Value" shall be the higher of (a) the highest price of the
Company's stock as quoted on the NASDAQ, or any other exchange
complying with the requirements of the Securities and Exchange Act of
1934, as amended, within the period beginning ninety (90) days prior
to the Date of Termination and ending upon such Date of Termination,
and (b) the highest price of the Company's stock as quoted on the
NASDAQ, or any other exchange complying with the requirements of the
Securities and Exchange Act of 1934, as amended, within the period
beginning ninety (90) days prior to a Change of Control and ending
upon the date of a Change of Control.
(v) If, within thirty-six (36) months after a Change in
Control of the Company has occurred, your employment by the Company is
terminated (a) by the Company other than for Cause or Disability, or
(b) by you for Good Reason, then the Company shall maintain in full
force and effect, for the continued benefit of you and your dependents
for a period terminating on the earliest of (a) three (3) years after
the Date of Termination or (b) the commencement date of equivalent
benefits from a new employer, insured and self-insured employee
welfare benefit Plans in which you were entitled to participate
immediately prior to the Date of Termination, provided that your
continued participation is possible under the general terms and
provisions of such Plans (and any applicable funding media) and you
continue to pay an amount equal to your regular contribution under
such Plans for such participation. If three (3) years after the Date
of Termination you have not previously received, nor are then
receiving, equivalent benefits from a new employer, the Company shall
offer you continuation coverage under COBRA as prescribed under
Section 4980B of the Code. At the expiration of such continuation
coverage (or, if COBRA continuation coverage is not applicable to the
Plan, then upon the expiration of the three (3) year period beginning
on the Termination Date), the Company shall arrange, at its sole cost
and expense, to enable you to convert you and your dependents'
coverage under such plans to individual policies and programs upon the
same terms as employees of the Company may apply for such conversions.
In the event that your participation in any such Plan is barred, the
Company, at its sole cost and expense, shall arrange to have issued
for the benefit of you and your dependents individual policies of
insurance providing benefits substantially similar (on an after-tax
basis) to those which you otherwise would have been entitled to
receive under such Plans pursuant to this paragraph (v) or, if such
insurance is not available at a reasonable cost to the Company, the
Company shall otherwise provide you and your dependents with
equivalent benefits (on an after-tax basis). You shall not be
required to pay any premiums or other charges in an amount greater
than that which you would have paid in order to participate in such
Plans.
<PAGE>
Mr. Robert T. Ritter
June 20, 1996
Page 8
(vi) Except as specifically provided in paragraph (v) above, the
amount of any payment provided for in this Section 5 shall not be
reduced, offset or subject to recovery by the Company by reason of any
compensation earned by you as the result of employment by another
employer after the Date of Termination, or otherwise.
(vii) In the event that you become entitled to the
payments provided by paragraphs (iii) and (iv) of Section 5(iii)
hereof (the "Agreement Payments"), if any of the Agreement Payments
will be subject to the tax (the "Excise Tax") imposed by Section 4999
of the Code (or any similar tax that may hereafter be imposed), the
Company shall pay to you at the time specified in paragraph (viii)
below an additional amount (the "Gross-up Payment") such that the net
amount retained by you, after deduction of any Excise Tax on the Total
Payments (as hereinafter defined) and any federal, state and local
income tax and Excise Tax upon the Gross-up Payment provided for by
this paragraph (vii), but before deduction for any federal, state or
local income tax on the Agreement Payments, shall be equal to the sum
of (a) the Total Payments and (b) an amount equal to the product of
any deductions disallowed because of the inclusion of the Gross-up
Payment in your adjusted gross income and the highest applicable
marginal rate of federal income taxation for the calendar year in
which the Gross-up Payment is to be made.
For purposes of determining whether any of the Agreement
Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (a) any other payments or benefits received or to be
received by you in connection with a Change in Control of the Company
or your termination of employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control of the
Company or any person affiliated with the Company or such person)
(which, together with the Agreement Payments, shall constitute the
"Total Payments") shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless in the opinion of tax
counsel selected by the Company's independent auditors such other
payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the Code, or
are otherwise not subject to the Excise Tax; (b) the amount of the
Total Payments which shall be treated as subject to the Excise Tax
shall be equal to the lesser of (1) the total amount of the Total
Payments or (2) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying clause (a),
above); and (c) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G(d)(3) and
(4) of the Code.
For purposes of determining the amount of the Gross-up
Payment, you shall be deemed to (a) pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year
in which the Gross-up Payment is to be made, (b) pay the applicable
state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net
of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes (determined
without regard to limitations on deductions based upon the amount of
your adjusted gross income), and (c) have otherwise allowable
deductions for federal income tax purposes at least equal to those
disallowed because of the inclusion of the Gross-up Payment in your
adjusted gross income. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account
<PAGE>
Mr. Robert T. Ritter
June 20, 1996
Page 9
hereunder at the time the Gross-up Payment is made, you shall repay to
the Company at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-up Payment
attributable to such reduction (plus the portion of the Gross-up
Payment attributable to the Excise Tax and federal state and local
income tax imposed on the portion of the Gross-up Payment being repaid
by you if such repayment results in a reduction in Excise Tax and/or a
federal and state and local income tax deduction), plus interest on
the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax
is determined to exceed the amount taken into account hereunder at the
time the Gross-up Payment is made (including by reason of any payment
the existence or amount of which cannot be determined at the time of
the Gross-up Payment), the Company shall make an additional Gross-up
Payment in respect of such excess (plus any interest payable with
respect to such excess at the rate provided in Section 1274(b)(2)(B)
of the Code) at the time that the amount of such excess is finally
determined.
(viii) The Gross-up Payment or portion thereof provided
for in paragraph (vii) above shall be paid not later than the
thirtieth (30th) day following payment of any amounts under paragraphs
(iii) and (iv) of Section 5; provided, however, that if the amount of
such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to you on such day an
estimate, as determined in good faith by the Company, of the minimum
amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B)
of the Code) as soon as the amount thereof can be determined, but in
no event later than the forty-fifth (45th) day after payment of any
amounts under paragraphs (iii) and (iv) of Section 5. In the event
that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute
a loan by the Company to you, payable on the fifth (5th) day after
demand by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code).
6. Successors; Binding Agreement.
(i) The Company will seek, by written request at least five
(5) business days prior to the time a Person becomes a Successor (as
hereinafter defined), to have such Person, by agreement in form and
substance satisfactory to you, assent to the fulfillment of the
Company's obligations under this Agreement. Failure of such Person to
furnish such assent by the later of (a) three (3) business days prior
to the time such Person becomes a Successor or (b) two (2) business
days after such Person receives a written request to so assent shall
constitute Good Reason for termination by you of your employment if a
Change in Control of the Company occurs or has occurred. For purposes
of this Agreement, "Successor" shall mean any Person that succeeds to,
or has the practical ability to control (either immediately or with
the passage of time), the Company's business directly, by merger or
consolidation, or indirectly, by purchase of the Company's Voting
Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amount would still be payable
to you hereunder if you had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or,
if no such designee exists, to your estate.
(iii) For purposes of this Agreement, the "Company"
shall include any subsidiaries of the Company and any corporation or
other entity which is the surviving or continuing entity in respect of
any merger, consolidation or form of business combination in which the
<PAGE>
Mr. Robert T. Ritter
June 20, 1996
Page 10
Company ceases to exist; provided, however, for purposes of
determining whether a Change in Control has occurred herein, the term
"Company" shall refer to WLR Foods, , Inc. or its successor(s).
7. Fees and Expenses; Mitigation.
(i) The Company shall reimburse you, on a current basis,
for all reasonable legal fees and related expenses incurred by you in
connection with the Agreement following a Change in Control of the
Company, including without limitation, (a) all such fees and expenses,
if any, incurred in contesting or disputing any termination of your
employment or incurred by you in seeking advice with respect to the
matters set forth in Section 8 hereof or (b) your seeking to obtain or
enforce any right or benefit provided by this Agreement, in each case,
regardless of whether or not your claim is upheld by a court of
competent jurisdiction; provided, however, you shall be required to
repay any such amounts to the Company to the extent that a court
issues a final and non-appealable order setting forth the
determination that the position taken by you was frivolous or advanced
by you in bad faith.
(ii) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection
with this Agreement, by seeking other employment or otherwise.
8. Taxes. Subject to the provisions of Section 5(vii), all
payments to be made to you under this Agreement will be subject to
required withholding of federal, state and local income and employment
taxes.
9. Survival. The respective obligations of, and benefits
afforded to, the Company and you as provided in Sections 5, 6(ii), 7,
8, 12 and 14 of this Agreement shall survive termination of this
Agreement.
10. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed
by United States registered mail, return receipt requested, postage
prepaid and addressed, in the case of the Company, to the address set
forth on the first page of this Agreement or, in the case of the
undersigned employee, to the address set forth below his signature,
provided that all notices to the Company shall be directed to the
attention of the Chairman of the Board or President of the Company,
with a copy to the Secretary of the Company, or to such other address
as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such modification, waiver or
discharge is agreed to in a writing signed by you and the Chairman of
the Board or President of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or of
compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this
Agreement.
12. Governing Law and Venue. The validity, interpretation,
construction and performance of this Agreement shall be governed by
the laws of the Commonwealth of Virginia. Venue for any proceeding
related to the performance or interpretation of this Agreement, or in
any way arising out of this Agreement, shall be either the Circuit
<PAGE>
Mr. Robert T. Ritter
June 20, 1996
Page 11
Court of Rockingham County, Virginia, or the United States District
Court for the Western District of Virginia, Harrisonburg Division.
13. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
14. Employee's Commitment. You agree that subsequent to your
period of employment with the Company, you will not at any time
communicate or disclose to any unauthorized person, without the
written consent of the Company, any proprietary processes of the
Company or other confidential information concerning its business,
affairs, products, suppliers or customers which, if disclosed, would
have a material adverse effect upon the business or operations of the
Company, taken as a whole; it being understood, however, that the
obligations under this Section 14 shall not apply to the extent that
the aforesaid matters (a) are disclosed in circumstances where you are
legally required to do so or (b) become generally known to, and
available for use by, the public otherwise than by your wrongful act
or omission.
15. Related Agreements. To the extent that any provision of any
other agreement between the Company and you shall limit, qualify or be
inconsistent with any provision of this Agreement, then for purposes
of this Agreement, while the same shall remain in force, the provision
of such other agreement shall be deemed to have been superseded, and
to be of no force or effect, as if such other agreement had been
formally amended to the extent necessary to accomplish such purpose.
Notwithstanding the effect of the preceding sentence, the conditional
Employment Agreement, renewed on June 26, 1992 between the Company and
you is hereby cancelled and shall be of no force or effect.
If this letter correctly sets forth our agreement on the
subject matter hereof, kindly sign and return to the Company the
enclosed copy of this letter which will then constitute our agreement
on this subject.
Sincerely,
WLR Foods, Inc.
By____/s/ Herman D. Mason______________
Herman D. Mason, Chair
Executive Compensation Committee
WLR Foods, Inc.
Agreed to this _28_ day of June, 1996.
___/s/ Robert T. Ritter_______________
Robert T. Ritter
______________________________________
______________________________________
Exhibit 10.18
May 13, 1997
Mrs. Jane T. Brookshire
Vice President of Human Resources
WLR Foods, Inc.
Post Office Box 7000
Broadway, Virginia 22815-7000
Dear Mrs. Brookshire:
WLR Foods, Inc., a Virginia corporation (the "Company"),
considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best
interests of the Company and its shareholders. In this connection,
the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a Change in Control (as defined
herein) may arise and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of
the Company and its shareholders. Accordingly, the Board of Directors
of the Company (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management to their assigned
duties without distraction in circumstances arising from the
possibility of a Change in Control of the Company. In particular, the
Board believes it important, should the Company or its shareholders
receive a proposal for transfer of control of the Company, that you be
able to assess and advise the Board whether such proposal would be in
the best interests of the Company and its shareholders and to take
such other action regarding such proposal as the Board might determine
to be appropriate, without being influenced by the uncertainties of
your own situation.
In order to induce you to remain in the employ of the Company,
this letter agreement ("Agreement"), which has been approved by the
Board, sets forth the severance benefits which the Company agrees will
be provided to you in the event your employment with the Company is
terminated subsequent to a Change in Control of the Company under the
circumstances described below.
1. Agreement to Provide Services; Right to Terminate.
(i) Except as otherwise provided in paragraph (ii) below,
the Company or you may terminate your employment at any time following
a Change in Control as defined herein, subject to the Company's
providing the benefits hereinafter specified in accordance with the
terms hereof.
(ii) In the event a Person (as hereinafter defined) makes an
offer which, if accepted by the Company and subsequently consummated, <PAGE>
would constitute a Change in Control, you agree that you will not
leave the employ of the Company (other than as a result of Disability
or upon Retirement, as such terms are hereinafter defined) and will
render the services contemplated in the recitals to this Agreement
until such Change in Control offer has been abandoned or terminated or
a Change in Control has occurred. For the purposes of this Agreement,
Retirement shall mean a termination of your employment by you on or
after you have reached age sixty-five (65) and have completed at least
five (5) years of service for the Company (including any service for a
predecessor of the Company where such prior service is recognized by
the Company for the purpose of awarding other benefits). For purposes
of this Section 1, "years of service" shall be defined as in the WLR
Profit Sharing and Salary Savings Plan.
2. Term of Agreement. This Agreement shall commence on the
date hereof and shall continue in effect until December 31, 1997;
provided, however, that commencing on January 1, 1998 and each January
1 thereafter, the term of this Agreement shall automatically be
<PAGE>
Mrs. Jane T. Brookshire
May 13, 1997
Page 2
extended for one (1) additional year unless at least ninety (90) days
prior to such January 1st date, the Company or you shall have given
notice that this Agreement shall not be extended; and provided,
further, that, notwithstanding the delivery of any such notice, this
Agreement shall continue in effect for a period of thirty-six (36)
months after a Change in Control, if such Change in Control shall have
occurred while this Agreement is in effect. Notwithstanding anything
in this Section 2 to the contrary, this Agreement shall terminate if
you or the Company terminate your employment prior to a Change in
Control of the Company.
3. Change in Control. For the purpose of this Agreement, a
"Change in Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13 (d) (3) or 14 (d) (2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty percent (20%) or more of
either the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that in no event may the
following acquisitions constitute a Change in Control: (a) any
acquisition directly from the Company (excluding an acquisition by
virtue of the exercise of a conversion privilege), (b) any acquisition
by the Company, (c) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (d) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the conditions
described in clauses (a), (b) and (c) of paragraph (iii) of this
Section 3 are satisfied, or (e) any sale or other disposition of all
or substantially all of the assets of the Company, if , following such
sale or other disposition, the conditions described in (1), (2) and
(3) of paragraph (iv) of this Section 3 are satisfied; or
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least seventy-five percent (75%) of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, unless, in each case
following such reorganization, merger or consolidation, (a) more than
sixty percent (60%) of, respectively, the then outstanding shares of
common stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership
immediately prior to such reorganization, merger or consolidation, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (b) no Person (excluding the Company,
any employee benefit plan (or related trust) of the Company or a
corporation resulting from such reorganization, merger or
consolidation) beneficially owns, directly or indirectly, thirty-nine
percent (39%) or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors, and (c) at least a majority of
<PAGE>
Mrs. Jane T. Brookshire
May 13, 1997
Page 3
the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(iv) Approval by the shareholders of the Company of (a) a
complete liquidation or dissolution of the Company or (b) the sale or
other disposition of all or substantially all of the assets of the
Company, other than to a corporation with respect to which following
such sale or other disposition, (1) more than sixty percent (60%) of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case
may be, (2) no Person (excluding the Company and any employee benefit
plan (or related trust) of the Company or such corporation)
beneficially owns, directly or indirectly, thirty-nine percent (39%)
or more of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (3) at least a majority of
the members of the board of directors of such corporation were members
of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other
disposition of assets of the Company.
(v) Notwithstanding anything in the paragraphs (i) - (iv)
of this Section 3 to the contrary, no Change in Control shall be
deemed to have occurred for purposes of this Agreement by virtue of
any transaction which results in you, or a group of Persons which
includes you, acquiring, directly or indirectly, twenty percent (20%)
or more of the combined voting power of the Company's Voting
Securities.
4. Termination Following Change in Control. If any of the
events described in Section 3 hereof constituting a Change in Control
of the Company shall have occurred, you shall be entitled to the
benefits provided in Section 5 hereof upon the termination of your
employment with the Company within thirty-six (36) months after such
Change in Control, unless such termination is (a) because of your
death, (b) by the Company for Cause or Disability or (c) by you other
than for Good Reason (as all such capitalized terms are hereinafter
defined).
(i) Disability. Termination by the Company of your
employment based on "Disability" shall mean termination because of
your absence from your duties with the Company on a full time basis
for one hundred eighty (180) consecutive days as a result of your
incapacity due to physical or mental illness, unless within thirty
(30) days after Notice of Termination (as hereinafter defined) is
given to you following such absence, you shall have returned to the
full time performance of your duties.
(ii) Cause. Termination by the Company of your employment
for "Cause" shall mean termination upon (a) the willful and continued
failure by you to perform substantially your duties with the Company
(other than any such failure resulting from your incapacity due to
physical or mental illness) after a written demand for substantial
performance is delivered to you by the Chairman of the Board or
President of the Company which specifically identifies the manner(s)
in which such executive believes that you have not substantially
performed your duties, or (b) the willful engaging by you in illegal
conduct which is materially and demonstrably injurious to the Company.
For purposes of this paragraph (ii), no act, or failure to act, on
your part shall be considered "willful" unless done, or failed to be
done, by you in bad faith and without reasonable belief that your
<PAGE>
Mrs. Jane T. Brookshire
May 13, 1997
Page 4
action or omission was in, or not opposed to, the best interests of
the Company. Any act or failure to act based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the
advice of counsel for the Company shall be conclusively presumed to be
done, or omitted to be done, by you in good faith and in the best
interests of the Company. It is also expressly understood that your
attention to matters not directly related to the business of the
Company shall not provide a basis for termination for Cause so long as
the Board has approved your engagement in such activities.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered
to you a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board at
a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with
your counsel, to be heard before the Board), finding that in the good
faith opinion of the Board you were guilty of the conduct set forth
above in clauses (a) or (b) of this paragraph (ii) and specifying the
particulars thereof in detail.
(iii) Good Reason. Termination by you of your
employment for "Good Reason" shall mean termination based on:
(A) a determination by you, in your reasonable
judgment, that there has been an adverse change in your status or
position(s) as an executive officer of the Company as in effect
immediately prior to the Change in Control, including, without
limitation, any adverse change in your status or position as a result
of a diminution in your duties or responsibilities (other than, if
applicable, any such change directly attributable to the fact that the
Company is no longer publicly owned) or the assignment to you of any
duties or responsibilities which are inconsistent with such status or
position(s), or any removal of you from, or any failure to reappoint
or reelect you to, such positions(s) (except in connection with the
termination of your employment for Cause or Disability or as a result
of your death or by you other than for Good Reason);
(B) a reduction by the Company in your base salary as
in effect immediately prior to the Change in Control;
(C) the failure by the Company to continue in effect
any Plan (as hereinafter defined) in which you are participating at
the time of the Change in Control of the Company (or Plans providing
you with at least substantially similar benefits) other than as a
result of the normal expiration of any such Plan in accordance with
its terms as in effect at the time of the Change in Control, or the
taking of any action, or the failure to act, by the Company which
would adversely affect your continued participation in any of such
Plans on at least as favorable a basis to you as is the case on the
date of the Change in Control or which would materially reduce your
benefits in the future under any of such Plans or deprive you of any
material benefit enjoyed by you at the time of the Change in Control;
(D) the failure by the Company to provide and credit
you with the number of paid vacation days to which you are then
entitled in accordance with the Company's normal vacation policy as in
effect immediately prior to the Change in Control;
(E) the Company's requiring you to be based at any
office that is greater than thirty (30) miles from where your office
is located immediately prior to the Change in Control except for
required travel on the Company's business to an extent substantially
consistent with the business travel obligations which you undertook on
behalf of the Company prior to the Change in Control;
(F) the failure by the Company to obtain from any
Successor (as hereinafter defined) the assent to this Agreement
contemplated by Section 6 hereof;
(G) any purported termination by the Company of your
employment which is not effected pursuant to a Notice of Termination
<PAGE>
Mrs. Jane T. Brookshire
May 13, 1997
Page 5
satisfying the requirements of paragraph (iv) below (and, if
applicable, paragraph (ii) above); and for purposes of this Agreement,
no such purported termination shall be effective; or
(H) any refusal by the Company to continue to allow
you to attend to matters or engage in activities not directly related
to the business of the Company which, prior to the Change in Control,
you were permitted by the Board to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any
compensation plan such as the Company Incentive Bonus Plan or any
employee benefit plan such as a thrift, pension, profit sharing,
medical, disability, accident, life insurance plan or a relocation
plan or policy or any other plan, program or policy of the Company
intended to benefit employees, except for the Company Restated Long-
Term Incentive Plan.
(iv) Notice of Termination. Any purported termination by
the Company or by you following a Change in Control shall be
communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon.
(v) Date of Termination. "Date of Termination" following a
Change in Control shall mean (a) if your employment is to be
terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty
(30) day period), (b) if your employment is to be terminated by the
Company for Cause or by you pursuant to Sections 4(iii)(F) or 6 hereof
or for any other Good Reason, the date specified in the Notice of
Termination, (c) if your employment is to be terminated by the Company
for any reason other than Cause, the date specified in the Notice of
Termination, which in no event shall be a date earlier than ninety
(90) days after the date on which a Notice of Termination is given,
unless an earlier date has been expressly agreed to by you in writing
either in advance of, or after, receiving such Notice of Termination,
or (d) if your employment is terminated on account of your death, the
day after your death. In the case of termination of your employment
by the Company for Cause, if you have not previously expressly agreed
in writing to the termination, then within thirty (30) days after
receipt by you of the Notice of Termination with respect thereto, you
may notify the Company that a dispute exists concerning the
termination, in which event the Date of Termination shall be the date
set either by mutual written agreement of the parties or by such court
having the matter before it. During the pendency of any such dispute,
the Company will continue to pay you your full compensation in effect
just prior to the time the Notice of Termination is given and until
the dispute is resolved. However, if such court issues a final and
non-appealable order finding that the Company had Cause to terminate
you then you must return all compensation paid to you after the Date
of Termination specified in the Notice of Termination previously
received by you.
5. Compensation Upon Termination or During Disability; Other
Agreements.
(i) During any period following a Change in Control of the
Company that you fail to perform your duties as a result of incapacity
due to physical or mental illness, you shall continue to receive your
base salary at the rate then in effect and any benefits or awards
under any Plans shall continue to accrue during such period, to the
extent not inconsistent with such Plans, until your employment is
terminated pursuant to and in accordance with paragraphs 4(iv) - 4(v)
hereof. Thereafter, your benefits shall be determined in accordance
with the Plans then in effect.
(ii) If your employment is terminated for Cause following a
Change in Control of the Company, the Company shall pay to you your
base salary through the Date of Termination at the rate in effect just
prior to the time a Notice of Termination is given plus any benefits
or awards (including both the cash and stock components) which
pursuant to the terms of any Plans have been earned or become payable,
<PAGE>
Mrs. Jane T. Brookshire
May 13, 1997
Page 6
but which have not yet been paid to you. Thereupon the Company shall
have no further obligations to you under this Agreement.
(iii) Subject to Section 8 hereof, if, within thirty-six
(36) months after a Change in Control of the Company has occurred,
your employment by the Company is terminated other than on account of
your death and is terminated (a) by the Company other than for Cause
or Disability or (b) by you for Good Reason, then the Company shall
pay to you, no later than the fifth (5th) day following the Date of
Termination, without regard to any contrary provisions of any Plan,
the following:
(A) your base salary through the Date of Termination
at the rate in effect just prior to the time a Notice of Termination
is given plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans have been
earned or become payable, but which have not yet been paid to you
(including amounts which previously had been deferred at your
request);
(B) an amount in cash equal to three times the sum of
(i) the higher of (a) your annual base salary on the Date of
Termination or (b) your annual base salary in effect immediately prior
to the Change in Control plus (ii) an amount equal to the average of
the bonuses awarded to you in each of the three previous years.
For the purposes of this Agreement, the term "base salary"
shall include any amounts deducted by the Company with respect to you
or for your account pursuant to Sections 125 and 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code").
(iv) If, within thirty-six (36) months after a Change in
Control of the Company has occurred, your employment by the Company is
terminated for any reason other than retirement, the Company shall pay
to you, on the date specified below, an amount ("Spread") in cash
equal to the Termination Fair Market Value (as hereinafter defined)
less the exercise price of all options which were granted to you
pursuant to the Company's Restated Long-Term Incentive Plan or any
Plan succeeding thereto, and which shall not become exercisable prior
to (a) the end of the one (1) year period immediately following the
Date of Termination if your employment is terminated on account of
your death, or (b) the end of the third (3rd) month following the Date
of Termination if your employment is terminated for any reason other
than death. The Company shall make such payment upon the fifth (5th)
day following such Date of Termination.
For the purposes of this Agreement, the "Termination Fair
Market Value" shall be the higher of (a) the highest price of the
Company's stock as quoted on the NASDAQ, or any other exchange
complying with the requirements of the Securities and Exchange Act of
1934, as amended, within the period beginning ninety (90) days prior
to the Date of Termination and ending upon such Date of Termination,
and (b) the highest price of the Company's stock as quoted on the
NASDAQ, or any other exchange complying with the requirements of the
Securities and Exchange Act of 1934, as amended, within the period
beginning ninety (90) days prior to a Change of Control and ending
upon the date of a Change of Control.
(v) If, within thirty-six (36) months after a Change in
Control of the Company has occurred, your employment by the Company is
terminated (a) by the Company other than for Cause or Disability, or
(b) by you for Good Reason, then the Company shall maintain in full
force and effect, for the continued benefit of you and your dependents
for a period terminating on the earliest of (a) three (3) years after
the Date of Termination or (b) the commencement date of equivalent
benefits from a new employer, insured and self-insured employee
welfare benefit Plans in which you were entitled to participate
immediately prior to the Date of Termination, provided that your
continued participation is possible under the general terms and
provisions of such Plans (and any applicable funding media) and you
continue to pay an amount equal to your regular contribution under
such Plans for such participation. If three (3) years after the Date
of Termination you have not previously received, nor are then
<PAGE>
Mrs. Jane T. Brookshire
May 13, 1997
Page 7
receiving, equivalent benefits from a new employer, the Company shall
offer you continuation coverage under COBRA as prescribed under
Section 4980B of the Code. At the expiration of such continuation
coverage (or, if COBRA continuation coverage is not applicable to the
Plan, then upon the expiration of the three (3) year period beginning
on the Termination Date), the Company shall arrange, at its sole cost
and expense, to enable you to convert you and your dependents'
coverage under such plans to individual policies and programs upon the
same terms as employees of the Company may apply for such conversions.
In the event that your participation in any such Plan is barred, the
Company, at its sole cost and expense, shall arrange to have issued
for the benefit of you and your dependents individual policies of
insurance providing benefits substantially similar (on an after-tax
basis) to those which you otherwise would have been entitled to
receive under such Plans pursuant to this paragraph (v) or, if such
insurance is not available at a reasonable cost to the Company, the
Company shall otherwise provide you and your dependents with
equivalent benefits (on an after-tax basis). You shall not be
required to pay any premiums or other charges in an amount greater
than that which you would have paid in order to participate in such
Plans.
(vi) Except as specifically provided in paragraph (v) above,
the amount of any payment provided for in this Section 5 shall not be
reduced, offset or subject to recovery by the Company by reason of any
compensation earned by you as the result of employment by another
employer after the Date of Termination, or otherwise.
(vii) In the event that you become entitled to the
payments provided by paragraphs (iii) and (iv) of Section 5(iii)
hereof (the "Agreement Payments"), if any of the Agreement Payments
will be subject to the tax (the "Excise Tax") imposed by Section 4999
of the Code (or any similar tax that may hereafter be imposed), the
Company shall pay to you at the time specified in paragraph (viii)
below an additional amount (the "Gross-up Payment") such that the net
amount retained by you, after deduction of any Excise Tax on the Total
Payments (as hereinafter defined) and any federal, state and local
income tax and Excise Tax upon the Gross-up Payment provided for by
this paragraph (vii), but before deduction for any federal, state or
local income tax on the Agreement Payments, shall be equal to the sum
of (a) the Total Payments and (b) an amount equal to the product of
any deductions disallowed because of the inclusion of the Gross-up
Payment in your adjusted gross income and the highest applicable
marginal rate of federal income taxation for the calendar year in
which the Gross-up Payment is to be made.
For purposes of determining whether any of the Agreement
Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (a) any other payments or benefits received or to be
received by you in connection with a Change in Control of the Company
or your termination of employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control of the
Company or any person affiliated with the Company or such person)
(which, together with the Agreement Payments, shall constitute the
"Total Payments") shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless in the opinion of tax
counsel selected by the Company's independent auditors such other
payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the Code, or
are otherwise not subject to the Excise Tax; (b) the amount of the
Total Payments which shall be treated as subject to the Excise Tax
shall be equal to the lesser of (1) the total amount of the Total
Payments or (2) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying clause (a),
above); and (c) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G(d)(3) and
(4) of the Code.
<PAGE>
Mrs. Jane T. Brookshire
May 13, 1997
Page 8
For purposes of determining the amount of the Gross-up
Payment, you shall be deemed to (a) pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year
in which the Gross-up Payment is to be made, (b) pay the applicable
state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net
of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes (determined
without regard to limitations on deductions based upon the amount of
your adjusted gross income), and (c) have otherwise allowable
deductions for federal income tax purposes at least equal to those
disallowed because of the inclusion of the Gross-up Payment in your
adjusted gross income. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account
hereunder at the time the Gross-up Payment is made, you shall repay to
the Company at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-up Payment
attributable to such reduction (plus the portion of the Gross-up
Payment attributable to the Excise Tax and federal state and local
income tax imposed on the portion of the Gross-up Payment being repaid
by you if such repayment results in a reduction in Excise Tax and/or a
federal and state and local income tax deduction), plus interest on
the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax
is determined to exceed the amount taken into account hereunder at the
time the Gross-up Payment is made (including by reason of any payment
the existence or amount of which cannot be determined at the time of
the Gross-up Payment), the Company shall make an additional Gross-up
Payment in respect of such excess (plus any interest payable with
respect to such excess at the rate provided in Section 1274(b)(2)(B)
of the Code) at the time that the amount of such excess is finally
determined.
(viii) The Gross-up Payment or portion thereof provided
for in paragraph (vii) above shall be paid not later than the
thirtieth (30th) day following payment of any amounts under paragraphs
(iii) and (iv) of Section 5; provided, however, that if the amount of
such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to you on such day an
estimate, as determined in good faith by the Company, of the minimum
amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B)
of the Code) as soon as the amount thereof can be determined, but in
no event later than the forty-fifth (45th) day after payment of any
amounts under paragraphs (iii) and (iv) of Section 5. In the event
that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute
a loan by the Company to you, payable on the fifth (5th) day after
demand by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code).
6. Successors; Binding Agreement.
(i) The Company will seek, by written request at least five
(5) business days prior to the time a Person becomes a Successor (as
hereinafter defined), to have such Person, by agreement in form and
substance satisfactory to you, assent to the fulfillment of the
Company's obligations under this Agreement. Failure of such Person to
furnish such assent by the later of (a) three (3) business days prior
to the time such Person becomes a Successor or (b) two (2) business
days after such Person receives a written request to so assent shall
constitute Good Reason for termination by you of your employment if a
Change in Control of the Company occurs or has occurred. For purposes
of this Agreement, "Successor" shall mean any Person that succeeds to,
or has the practical ability to control (either immediately or with
the passage of time), the Company's business directly, by merger or
consolidation, or indirectly, by purchase of the Company's Voting
Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amount would still be payable
to you hereunder if you had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the
<PAGE>
Mrs. Jane T. Brookshire
May 13, 1997
Page 9
terms of this Agreement to your devisee, legatee or other designee or,
if no such designee exists, to your estate.
(iii) For purposes of this Agreement, the "Company"
shall include any subsidiaries of the Company and any corporation or
other entity which is the surviving or continuing entity in respect of
any merger, consolidation or form of business combination in which the
Company ceases to exist; provided, however, for purposes of
determining whether a Change in Control has occurred herein, the term
"Company" shall refer to WLR Foods, , Inc. or its successor(s).
7. Fees and Expenses; Mitigation.
(i) The Company shall reimburse you, on a current basis,
for all reasonable legal fees and related expenses incurred by you in
connection with the Agreement following a Change in Control of the
Company, including without limitation, (a) all such fees and expenses,
if any, incurred in contesting or disputing any termination of your
employment or incurred by you in seeking advice with respect to the
matters set forth in Section 8 hereof or (b) your seeking to obtain or
enforce any right or benefit provided by this Agreement, in each case,
regardless of whether or not your claim is upheld by a court of
competent jurisdiction; provided, however, you shall be required to
repay any such amounts to the Company to the extent that a court
issues a final and non-appealable order setting forth the
determination that the position taken by you was frivolous or advanced
by you in bad faith.
(ii) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection
with this Agreement, by seeking other employment or otherwise.
8. Taxes. Subject to the provisions of Section 5(vii), all
payments to be made to you under this Agreement will be subject to
required withholding of federal, state and local income and employment
taxes.
9. Survival. The respective obligations of, and benefits
afforded to, the Company and you as provided in Sections 5, 6(ii), 7,
8, 12 and 14 of this Agreement shall survive termination of this
Agreement.
10. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed
by United States registered mail, return receipt requested, postage
prepaid and addressed, in the case of the Company, to the address set
forth on the first page of this Agreement or, in the case of the
undersigned employee, to the address set forth below his signature,
provided that all notices to the Company shall be directed to the
attention of the Chairman of the Board or President of the Company,
with a copy to the Secretary of the Company, or to such other address
as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such modification, waiver or
discharge is agreed to in a writing signed by you and the Chairman of
the Board or President of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or of
compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this
Agreement.
12. Governing Law and Venue. The validity, interpretation,
construction and performance of this Agreement shall be governed by
the laws of the Commonwealth of Virginia. Venue for any proceeding
related to the performance or interpretation of this Agreement, or in
any way arising out of this Agreement, shall be either the Circuit
Court of Rockingham County, Virginia, or the United States District
Court for the Western District of Virginia, Harrisonburg Division.
<PAGE>
Mrs. Jane T. Brookshire
May 13, 1997
Page 10
13. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
14. Employee's Commitment. You agree that subsequent to your
period of employment with the Company, you will not at any time
communicate or disclose to any unauthorized person, without the
written consent of the Company, any proprietary processes of the
Company or other confidential information concerning its business,
affairs, products, suppliers or customers which, if disclosed, would
have a material adverse effect upon the business or operations of the
Company, taken as a whole; it being understood, however, that the
obligations under this Section 14 shall not apply to the extent that
the aforesaid matters (a) are disclosed in circumstances where you are
legally required to do so or (b) become generally known to, and
available for use by, the public otherwise than by your wrongful act
or omission.
15. Related Agreements. To the extent that any provision of any
other agreement between the Company and you shall limit, qualify or be
inconsistent with any provision of this Agreement, then for purposes
of this Agreement, while the same shall remain in force, the provision
of such other agreement shall be deemed to have been superseded, and
to be of no force or effect, as if such other agreement had been
formally amended to the extent necessary to accomplish such purpose.
Notwithstanding the effect of the preceding sentence, the conditional
Employment Agreement, renewed on June 26, 1992 between the Company and
you is hereby cancelled and shall be of no force or effect.
If this letter correctly sets forth our agreement on the
subject matter hereof, kindly sign and return to the Company the
enclosed copy of this letter which will then constitute our agreement
on this subject.
Sincerely,
WLR Foods, Inc.
By___/s/ Herman D. Mason ____________
Herman D. Mason, Chair
Executive Compensation Committee
WLR Foods, Inc.
Agreed to this _30_ day of __May____, 1997
__/s/ Jane T. Brookshire______________
Jane T. Brookshire
______________________________________
______________________________________
Exhibit 10.19
February 4, 1994
Henry L. Holler
Vice President of Sales and Marketing
Wampler Foods, Inc.
P.O. Box 7275
Broadway, Virginia 22815
Dear Mr. Holler:
WLR Foods, Inc., a Virginia corporation (the "Company"),
considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best
interests of the Company and its shareholders. In this connection,
the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a Change in Control (as defined
herein) may arise and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of
the Company and its shareholders. Accordingly, the Board of Directors
of the Company (the "Board") has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management to their assigned
duties without distraction in circumstances arising from the
possibility of a Change in Control of the Company. In particular, the
Board believes it important, should the Company or its shareholders
receive a proposal for transfer of control of the Company, that you be
able to assess and advise the Board whether such proposal would be in
the best interests of the Company and its shareholders and to take
such other action regarding such proposal as the Board might determine
to be appropriate, without being influenced by the uncertainties of
your own situation.
In order to induce you to remain in the employ of the Company,
this letter agreement ("Agreement"), which has been approved by the
Board, sets forth the severance benefits which the Company agrees will
be provided to you in the event your employment with the Company is
terminated subsequent to a Change in Control of the Company under the
circumstances described below.
1. Agreement to Provide Services; Right to Terminate.
(i) Except as otherwise provided in paragraph (ii) below,
the Company or you may terminate your employment at any time following
a "Change in Control" as defined herein, subject to the Company's
providing the benefits hereinafter specified in accordance with the
terms hereof.
(ii) In the event a Person (as hereinafter defined) makes an
offer which, if accepted by the Company and subsequently consummated,
would constitute a Change in Control, you agree that you will not
leave the employ of the Company (other than as a result of Disability
or upon Retirement, as such terms are hereinafter defined) and will
render the services contemplated in the recitals to this Agreement
until such Change in Control offer has been abandoned or terminated or
a Change in Control has occurred. For the purposes of this Agreement,
Retirement shall mean a termination of your employment by you on or
after you have reached age sixty-five (65) and have completed at least
five (5) years of service for the Company (including any service for a
<PAGE>
predecessor of the Company where such prior service is recognized by
the Company for the purpose of awarding other benefits). For purposes
of this Section 1, "years of service" shall be defined as in the WLR
Profit Sharing and Salary Savings Plan.
2. Term of Agreement. This Agreement shall commence on the
date hereof and shall continue in effect until December 31, 1994;
provided, however, that commencing on January 1, 1995 and each January
1 thereafter, the term of this Agreement shall automatically be
extended for one (1) additional year unless at least ninety (90) days
prior to such January 1st date, the Company or you shall have given
notice that this Agreement shall not be extended; and provided,
further, that, notwithstanding the delivery of any such notice, this
Agreement shall continue in effect for a period of twenty-four (24)
months after a Change in Control, if such Change in Control shall have
occurred while this Agreement is in effect. Notwithstanding anything
in this Section 2 to the contrary, this Agreement shall terminate if
you or the Company terminate your employment prior to a Change in
Control of the Company.
3. Change in Control. For the purpose of this Agreement, a
"Change in Control" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13 (d) (3) or 14 (d) (2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty percent (20%) or more of
either the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that in no event may the
following acquisitions constitute a Change in Control: (a) any
acquisition directly from the Company (excluding an acquisition by
virtue of the exercise of a conversion privilege), (b) any acquisition
by the Company, (c) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (d) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the conditions
described in clauses (a), (b) and (c) of paragraph (iii) of this
Section 3 are satisfied, or (e) any sale or other disposition of all
or substantially all of the assets of the Company, if , following such
sale or other disposition, the conditions described in (1), (2) and
(3) of paragraph (iv) of this Section 3 are satisfied; or
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by
a vote of at least seventy-five percent (75%) of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, unless, in each case
following such reorganization, merger or consolidation, (a) more than
sixty percent (60%) of, respectively, the then outstanding shares of
common stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals
2
<PAGE>
and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership
immediately prior to such reorganization, merger or consolidation, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (b) no Person (excluding the Company,
any employee benefit plan (or related trust) of the Company or a
corporation resulting from such reorganization, merger or
consolidation) beneficially owns, directly or indirectly, thirty-nine
percent (39%) or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors, and (c) at least a majority of
the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(iv) Approval by the shareholders of the Company of (a) a
complete liquidation or dissolution of the Company or (b) the sale or
other disposition of all or substantially all of the assets of the
Company, other than to a corporation with respect to which following
such sale or other disposition, (1) more than sixty percent (60%) of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case
may be, (2) no Person (excluding the Company and any employee benefit
plan (or related trust) of the Company or such corporation)
beneficially owns, directly or indirectly, thirty-nine percent (39%)
or more of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (3) at least a majority of
the members of the board of directors of such corporation were members
of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other
disposition of assets of the Company.
(v) Notwithstanding anything in the paragraphs (i) - (iv)
of this Section 3 to the contrary, no Change in Control shall be
deemed to have occurred for purposes of this Agreement by virtue of
any transaction which results in you, or a group of Persons which
includes you, acquiring, directly or indirectly, twenty percent (20%)
or more of the combined voting power of the Company's Voting
Securities.
4. Termination Following Change in Control. If any of the
events described in Section 3 hereof constituting a Change in Control
of the Company shall have occurred, you shall be entitled to the
benefits provided in Section 5 hereof upon the termination of your
employment with the Company within twenty-four (24) months after such
Change in Control, unless such termination is (a) because of your
death, (b) by the Company for Cause or Disability or (c) by you other
than for Good Reason (as all such capitalized terms are hereinafter
defined).
(i) Disability. Termination by the Company of your
employment based on "Disability" shall mean termination because of
your absence from your duties with the Company on a full time basis
for one hundred eighty (180) consecutive days as a result of your
incapacity due to physical or mental illness, unless within thirty
3
<PAGE>
(30) days after Notice of Termination (as hereinafter defined) is
given to you following such absence, you shall have returned to the
full time performance of your duties.
(ii) Cause. Termination by the Company of your employment
for "Cause" shall mean termination upon (a) the willful and continued
failure by you to perform substantially your duties with the Company
(other than any such failure resulting from your incapacity due to
physical or mental illness) after a written demand for substantial
performance is delivered to you by the Chairman of the Board or
President of the Company which specifically identifies the manner(s)
in which such executive believes that you have not substantially
performed your duties, or (b) the willful engaging by you in illegal
conduct which is materially and demonstrably injurious to the Company.
For purposes of this paragraph (ii), no act, or failure to act, on
your part shall be considered "willful" unless done, or failed to be
done, by you in bad faith and without reasonable belief that your
action or omission was in, or not opposed to, the best interests of
the Company. Any act or failure to act based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the
advice of counsel for the Company shall be conclusively presumed to be
done, or omitted to be done, by you in good faith and in the best
interests of the Company. It is also expressly understood that your
attention to matters not directly related to the business of the
Company shall not provide a basis for termination for Cause so long as
the Board has approved your engagement in such activities.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered
to you a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board at
a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with
your counsel, to be heard before the Board), finding that in the good
faith opinion of the Board you were guilty of the conduct set forth
above in clauses (a) or (b) of this paragraph (ii) and specifying the
particulars thereof in detail.
(iii) Good Reason. Termination by you of your
employment for "Good Reason" shall mean termination based on:
(A) a determination by you, in your reasonable
judgment, that there has been an adverse change in your status or
position(s) as an executive officer of the Company as in effect
immediately prior to the Change in Control, including, without
limitation, any adverse change in your status or position as a result
of a diminution in your duties or responsibilities (other than, if
applicable, any such change directly attributable to the fact that the
Company is no longer publicly owned) or the assignment to you of any
duties or responsibilities which are inconsistent with such status or
position(s), or any removal of you from, or any failure to reappoint
or reelect you to, such positions(s) (except in connection with the
termination of your employment for Cause or Disability or as a result
of your death or by you other than for Good Reason);
(B) a reduction by the Company in your base salary as
in effect immediately prior to the Change in Control;
(C) the failure by the Company to continue in effect
any Plan (as hereinafter defined) in which you are participating at
the time of the Change in Control of the Company (or Plans providing
you with at least substantially similar benefits) other than as a
result of the normal expiration of any such Plan in accordance with
its terms as in effect at the time of the Change in Control, or the
taking of any action, or the failure to act, by the Company which
would adversely affect your continued participation in any of such
Plans on at least as favorable a basis to you as is the case on the
date of the Change in Control or which would materially reduce your
4
<PAGE>
benefits in the future under any of such Plans or deprive you of any
material benefit enjoyed by you at the time of the Change in Control;
(D) the failure by the Company to provide and credit
you with the number of paid vacation days to which you are then
entitled in accordance with the Company's normal vacation policy as in
effect immediately prior to the Change in Control;
(E) the Company's requiring you to be based at any
office that is greater than thirty (30) miles from where your office
is located immediately prior to the Change in Control except for
required travel on the Company's business to an extent substantially
consistent with the business travel obligations which you undertook on
behalf of the Company prior to the Change in Control;
(F) the failure by the Company to obtain from any
Successor (as hereinafter defined) the assent to this Agreement
contemplated by Section 6 hereof;
(G) any purported termination by the Company of your
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (iv) below (and, if
applicable, paragraph (ii) above); and for purposes of this Agreement,
no such purported termination shall be effective; or
(H) any refusal by the Company to continue to allow
you to attend to matters or engage in activities not directly related
to the business of the Company which, prior to the Change in Control,
you were permitted by the Board to attend to or engage in.
For purposes of this Agreement, "Plan" shall mean any
compensation plan such as the Company Incentive Bonus Plan or any
employee benefit plan such as a thrift, pension, profit sharing,
medical, disability, accident, life insurance plan or a relocation
plan or policy or any other plan, program or policy of the Company
intended to benefit employees, except for the Company Restated Long-
Term Incentive Plan.
(iv) Notice of Termination. Any purported termination by
the Company or by you following a Change in Control shall be
communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon.
(v) Date of Termination. "Date of Termination" following a
Change in Control shall mean (a) if your employment is to be
terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty
(30) day period), (b) if your employment is to be terminated by the
Company for Cause or by you pursuant to Sections 4(iii)(F) or 6 hereof
or for any other Good Reason, the date specified in the Notice of
Termination, (c) if your employment is to be terminated by the Company
for any reason other than Cause, the date specified in the Notice of
Termination, which in no event shall be a date earlier than ninety
(90) days after the date on which a Notice of Termination is given,
unless an earlier date has been expressly agreed to by you in writing
either in advance of, or after, receiving such Notice of Termination,
or (d) if your employment is terminated on account of your death, the
day after your death.. In the case of termination of your employment
by the Company for Cause, if you have not previously expressly agreed
in writing to the termination, then within thirty (30) days after
receipt by you of the Notice of Termination with respect thereto, you
may notify the Company that a dispute exists concerning the
termination, in which event the Date of Termination shall be the date
set either by mutual written agreement of the parties or by such court
having the matter before it. During the pendency of any such dispute,
5
<PAGE>
the Company will continue to pay you your full compensation in effect
just prior to the time the Notice of Termination is given and until
the dispute is resolved. However, if such court issues a final and
non-appealable order finding that the Company had Cause to terminate
you then you must return all compensation paid to you after the Date
of Termination specified in the Notice of Termination previously
received by you.
5. Compensation Upon Termination or During Disability; Other
Agreements.
(i) During any period following a Change in Control of the
Company that you fail to perform your duties as a result of incapacity
due to physical or mental illness, you shall continue to receive your
base salary at the rate then in effect and any benefits or awards
under any Plans shall continue to accrue during such period, to the
extent not inconsistent with such Plans, until your employment is
terminated pursuant to and in accordance with paragraphs 4(iv) - 4(v)
hereof. Thereafter, your benefits shall be determined in accordance
with the Plans then in effect.
(ii) If your employment is terminated for Cause following a
Change in Control of the Company, the Company shall pay to you your
base salary through the Date of Termination at the rate in effect just
prior to the time a Notice of Termination is given plus any benefits
or awards (including both the cash and stock components) which
pursuant to the terms of any Plans have been earned or become payable,
but which have not yet been paid to you. Thereupon the Company shall
have no further obligations to you under this Agreement.
(iii) Subject to Section 8 hereof, if, within twenty-
four (24) months after a Change in Control of the Company has
occurred, your employment by the Company is terminated other than on
account of your death and is terminated (a) by the Company other than
for Cause or Disability or (b) by you for Good Reason, then the
Company shall pay to you, no later than the fifth (5th) day following
the Date of Termination, without regard to any contrary provisions of
any Plan, the following:
(A) your base salary through the Date of Termination
at the rate in effect just prior to the time a Notice of Termination
is given plus any benefits or awards (including both the cash and
stock components) which pursuant to the terms of any Plans have been
earned or become payable, but which have not yet been paid to you
(including amounts which previously had been deferred at your
request);
(B) an amount in cash equal to one and one-half (1.5)
times the sum of (i) the higher of (a) your annual base salary on the
Date of Termination or (b) your annual base salary in effect
immediately prior to the Change in Control plus (ii) an amount equal
to the average of the bonuses awarded to you in each of the three
previous years.
For the purposes of this Agreement, the term "base salary"
shall include any amounts deducted by the Company with respect to you
or for your account pursuant to Sections 125 and 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code").
(iv) If, within twenty-four (24) months after a Change in
Control of the Company has occurred, your employment by the Company is
terminated for any reason other than retirement, the Company shall pay
to you, on the date specified below, an amount ("Spread") in cash
equal to the Termination Fair Market Value (as hereinafter defined)
less the exercise price of all options which were granted to you
pursuant to the Company's Restated Long-Term Incentive Plan or any
Plan succeeding thereto, and which shall not become exercisable prior
to (a) the end of the one (1) year period immediately following the
Date of Termination if your employment is terminated on account of
your death, or (b) the end of the third (3rd) month following the Date
6
<PAGE>
of Termination if your employment is terminated for any reason other
than death. The Company shall make such payment upon the fifth (5th)
day following such Date of Termination.
For the purposes of this Agreement, the "Termination Fair
Market Value" shall be the higher of (a) the highest price of the
Company's stock as quoted on the NASDAQ, or any other exchange
complying with the requirements of the Securities and Exchange Act of
1934, as amended, within the period beginning ninety (90) days prior
to the Date of Termination and ending upon such Date of Termination,
and (b) the highest price of the Company's stock as quoted on the
NASDAQ, or any other exchange complying with the requirements of the
Securities and Exchange Act of 1934, as amended, within the period
beginning ninety (90) days prior to a Change of Control and ending
upon the date of a Change of Control.
(v) If, within twenty-four (24) months after a Change in
Control of the Company has occurred, your employment by the Company is
terminated (a) by the Company other than for Cause or Disability, or
(b) by you for Good Reason, then the Company shall maintain in full
force and effect, for the continued benefit of you and your dependents
for a period terminating on the earliest of (a) one and one-half (1.5)
years after the Date of Termination or (b) the commencement date of
equivalent benefits from a new employer, insured and self-insured
employee welfare benefit Plans in which you were entitled to
participate immediately prior to the Date of Termination, provided
that your continued participation is possible under the general terms
and provisions of such Plans (and any applicable funding media) and
you continue to pay an amount equal to your regular contribution under
such Plans for such participation. If one and one-half (1.5) years
after the Termination Date, you have not previously received, nor are
then receiving, equivalent benefits from a new employer, the Company
shall offer you continuation coverage under COBRA as prescribed under
Section 4980B of the Code. At the expiration of such continuation
coverage (or, if COBRA continuation coverage is not applicable to the
Plan, then upon the expiration of the one and one-half (1.5) year
period beginning on the Termination Date) the Company shall arrange,
at its sole cost and expense, to enable you to convert you and your
dependents' coverage under such plans to individual policies and
programs upon the same terms as employees of the Company may apply for
such conversions. In the event that your participation in any such
Plan is barred, the Company, at its sole cost and expense, shall
arrange to have issued for the benefit of you and your dependents
individual policies of insurance providing benefits substantially
similar (on an after-tax basis) to those which you otherwise would
have been entitled to receive under such Plans pursuant to this
paragraph (v) or, if such insurance is not available at a reasonable
cost to the Company, the Company shall otherwise provide you and your
dependents with equivalent benefits (on an after-tax basis). You
shall not be required to pay any premiums or other charges in an
amount greater than that which you would have paid in order to
participate in such Plans.
(vi) Except as specifically provided in paragraph (v) above,
the amount of any payment provided for in this Section 5 shall not be
reduced, offset or subject to recovery by the Company by reason of any
compensation earned by you as the result of employment by another
employer after the Date of Termination, or otherwise.
(vii) In the event that you become entitled to the
payments provided by paragraphs (iii) and (iv) of Section 5 hereof
(the "Agreement Payments"), if any of the Agreement Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the
Code (or any similar tax that may hereafter be imposed), the Company
shall pay to you at the time specified in paragraph (viii) below an
additional amount (the "Gross-up Payment") such that the net amount
retained by you, after deduction of any Excise Tax on the Total
Payments (as hereinafter defined) and any federal, state and local
income tax and Excise Tax upon the Gross-up Payment provided for by
this paragraph (vii), but before deduction for any federal, state or
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<PAGE>
local income tax on the Agreement Payments, shall be equal to the sum
of (a) the Total Payments and (b) an amount equal to the product of
any deductions disallowed because of the inclusion of the Gross-up
Payment in your adjusted gross income and the highest applicable
marginal rate of federal income taxation for the calendar year in
which the Gross-up Payment is to be made.
For purposes of determining whether any of the Agreement
Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (a) any other payments or benefits received or to be
received by you in connection with a Change in Control of the Company
or your termination of employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control of the
Company or any person affiliated with the Company or such person)
(which, together with the Agreement Payments, shall constitute the
"Total Payments") shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless in the opinion of tax
counsel selected by the Company's independent auditors such other
payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the Code, or
are otherwise not subject to the Excise Tax; (b) the amount of the
Total Payments which shall be treated as subject to the Excise Tax
shall be equal to the lesser of (1) the total amount of the Total
Payments or (2) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying clause (a),
above); and (c) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G(d)(3) and
(4) of the Code.
For purposes of determining the amount of the Gross-up
Payment, you shall be deemed to (a) pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year
in which the Gross-up Payment is to be made, (b) pay the applicable
state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net
of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes (determined
without regard to limitations on deductions based upon the amount of
your adjusted gross income), and (c) have otherwise allowable
deductions for federal income tax purposes at least equal to those
disallowed because of the inclusion of the Gross-up Payment in your
adjusted gross income. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account
hereunder at the time the Gross-up Payment is made, you shall repay to
the Company at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-up Payment
attributable to such reduction (plus the portion of the Gross-up
Payment attributable to the Excise Tax and federal state and local
income tax imposed on the portion of the Gross-up Payment being repaid
by you if such repayment results in a reduction in Excise Tax and/or a
federal and state and local income tax deduction), plus interest on
the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax
is determined to exceed the amount taken into account hereunder at the
time the Gross-up Payment is made (including by reason of any payment
the existence or amount of which cannot be determined at the time of
the Gross-up Payment), the Company shall make an additional Gross-up
Payment in respect of such excess (plus any interest payable with
respect to such excess at the rate provided in Section 1274(b)(2)(B)
of the Code) at the time that the amount of such excess is finally
determined.
(viii) The Gross-up Payment or portion thereof provided
for in paragraph (vii) above shall be paid not later than the
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<PAGE>
thirtieth (30th) day following payment of any amounts under paragraphs
(iii) and (iv) of Section 5; provided, however, that if the amount of
such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to you on such day an
estimate, as determined in good faith by the Company, of the minimum
amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B)
of the Code) as soon as the amount thereof can be determined, but in
no event later than the forty-fifth (45th) day after payment of any
amounts under paragraphs (iii) and (iv) of Section 5. In the event
that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute
a loan by the Company to you, payable on the fifth (5th) day after
demand by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code).
6. Successors; Binding Agreement.
(i) The Company will seek, by written request at least five
(5) business days prior to the time a Person becomes a Successor (as
hereinafter defined), to have such Person, by agreement in form and
substance satisfactory to you, assent to the fulfillment of the
Company's obligations under this Agreement. Failure of such Person to
furnish such assent by the later of (a) three (3) business days prior
to the time such Person becomes a Successor or (b) two (2) business
days after such Person receives a written request to so assent shall
constitute Good Reason for termination by you of your employment if a
Change in Control of the Company occurs or has occurred. For purposes
of this Agreement, "Successor" shall mean any Person that succeeds to,
or has the practical ability to control (either immediately or with
the passage of time), the Company's business directly, by merger or
consolidation, or indirectly, by purchase of the Company's Voting
Securities or otherwise.
(ii) This Agreement shall inure to the benefit of and be
enforceable by your personal legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amount would still be payable
to you hereunder if you had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or,
if no such designee exists, to your estate.
(iii) For purposes of this Agreement, the "Company"
shall include any subsidiary of the Company and any corporation or
other entity which is the surviving or continuing entity in respect of
any merger, consolidation or form of business combination in which the
Company ceases to exist; provided, however, for purposes of determing
whether a Change in Control has occured herei;n, the term "Company"
shall refer to WLR Foods, , Inc. or its successor(s).
7. Fees and Expenses; Mitigation.
(i) The Company shall reimburse you, on a current basis,
for all reasonable legal fees and related expenses incurred by you in
connection with the Agreement following a Change in Control of the
Company, including without limitation, (a) all such fees and expenses,
if any, incurred in contesting or disputing any termination of your
employment or incurred by you in seeking advice with respect to the
matters set forth in Section 8 hereof or (b) your seeking to obtain or
enforce any right or benefit provided by this Agreement, in each case,
regardless of whether or not your claim is upheld by a court of
competent jurisdiction; provided, however, you shall be required to
repay any such amounts to the Company to the extent that a court
issues a final and non-appealable order setting forth the
determination that the position taken by you was frivolous or advanced
by you in bad faith.
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<PAGE>
(ii) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection
with this Agreement, by seeking other employment or otherwise.
8. Taxes. Subject to the provisions of Section 5(vii), all
payments to be made to you under this Agreement will be subject to
required withholding of federal, state and local income and employment
taxes.
9. Survival. The respective obligations of, and benefits
afforded to, the Company and you as provided in Sections 5, 6(ii), 7,
8, 12 and 14 of this Agreement shall survive termination of this
Agreement.
10. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed
by United States registered mail, return receipt requested, postage
prepaid and addressed, in the case of the Company, to the address set
forth on the first page of this Agreement or, in the case of the
undersigned employee, to the address set forth below his signature,
provided that all notices to the Company shall be directed to the
attention of the Chairman of the Board or President of the Company,
with a copy to the Secretary of the Company, or to such other address
as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon receipt.
11. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such modification, waiver or
discharge is agreed to in a writing signed by you and the Chairman of
the Board or President of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or of
compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this
Agreement.
12. Governing Law and Venue. The validity, interpretation,
construction and performance of this Agreement shall be governed by
the laws of the Commonwealth of Virginia. Venue for any proceeding
related to the performance or interpretation of this Agreement, or in
any way arising out of this Agreement, shall be either the Circuit
Court of Rockingham County, Virginia, or the United States District
Court for the Western District of Virginia, Harrisonburg Division.
13. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
14. Employee's Commitment. You agree that subsequent to your
period of employment with the Company, you will not at any time
communicate or disclose to any unauthorized person,
without the written consent of the Company, any proprietary processes
of the Company or other confidential information concerning its
business, affairs, products, suppliers or customers which, if
disclosed, would have a material adverse effect upon the business or
operations of the Company, taken as a whole; it being understood,
however, that the obligations under this Section 14 shall not apply to
the extent that the aforesaid matters (a) are disclosed in
circumstances where you are legally required to do so or (b) become
generally known to, and available for use by, the public otherwise
than by your wrongful act or omission.
15. Related Agreements. To the extent that any provision of any
other agreement between the Company and you shall limit, qualify or be
10
<PAGE>
inconsistent with any provision of this Agreement, then for purposes
of this Agreement, while the same shall remain in force, the provision
of such other agreement shall be deemed to have been superseded, and
to be of no force or effect, as if such other agreement had been
formally amended to the extent necessary to accomplish such purpose.
If this letter correctly sets forth our agreement on the
subject matter hereof, kindly sign and return to the Company the
enclosed copy of this letter which will then constitute our agreement
on this subject.
Sincerely,
WLR Foods, Inc.
By___/s/ Herman D. Mason_____________
Herman D. Mason, Chair
Executive Compensation Committee
WLR Foods, Inc.
Agreed to this __4__ day of _February______, 1994.
_____/s/ Henry L. Holler__________
Henry L. Holler
______________________________________
______________________________________
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<TABLE>
Exhibit 13.1
Financial Highlights from Registrant's Annual Report to Shareholders
<CAPTION>
WLR FOODS, INC. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS
Dollars in thousands, except
per share data
<S> <C> <C> <C> <C> <C>
June 28, June 29, July 1, July 2, July 3,
Fiscal year ended: 1997 1996 1995 1994 1993
--------- -------- -------- -------- --------
OPERATIONS
Net sales $1,013,777 $997,632 $908,776 $727,270 $616,702
Cost of sales 956,948 897,892 785,085 632,620 535,014
---------- -------- -------- -------- --------
Gross profit 56,829 99,740 123,691 94,650 81,688
Selling, general and
administrative expenses 95,728 97,324 91,420 63,606 55,732
---------- -------- -------- -------- --------
Operating income (Loss) (38,899) 2,416 32,271 31,044 25,956
Interest expense 13,143 9,359 6,666 4,989 3,816
Other (income) expense, net (1,646) 321 (332) (431) (567)
---------- -------- -------- -------- --------
Total other expense, net 11,497 9,680 6,334 4,558 3,249
Earnings (loss) before income
taxes and minority interest (50,396) (7,264) 25,937 26,486 22,707
Income tax expense (benefit) (18,260) (2,610) 9,749 9,897 8,057
Minority interest 47 32 55 38 43
---------- -------- -------- -------- --------
Net earnings (loss) before
cumulative effect of change in
accounting (32,183) (4,686) 16,133 16,551 14,607
Cumulative effect on prior
years of change in accounting - - - - -
---------- -------- -------- ------ --------
--
Net earnings (loss) (32,183) (4,686) 16,133 16,551 14,607
Less preferred stock dividends - - - - 1,389
---------- -------- -------- -------- --------
Net earnings (loss) available
to common shareholders $(32,183) $(4,686) $16,133 $16,551 $13,218
========== ======== ======== ======== ========
PER COMMON SHARE
Net earnings (loss) before
cumulative effect of change in
accounting $(1.86) $(0.27) $0.90 $1.01 $0.95
Cumulative effect on prior
years of change in accounting - - - - -
---------- -------- -------- -------- --------
Net earnings (loss) per share
(primary) $(1.86) $(0.27) $0.90 $1.01 $0.95
Net earnings (loss) per share
(fully diluted) $(1.86) (0.27) 0.90 1.01 0.93
Cash dividends declared
(excluding Cassco pooling) 0.12 0.24 0.22 0.21 0.21
Book value 7.89 10.00 10.47 9.45 8.66
Year-end stock price 8.50 14.00 14.38 17.00 11.33
Common shares outstanding
(in thousands):
Average for the year 17,276 17,528 17,859 16,451 15,667<F1>
At year end 16,597 17,682 17,298 16,514 16,427
========== ======= ======= ======== =======
1
</TABLE>
<PAGE>
<TABLE>
WLR FOODS, INC. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS-Continued
Dollars in thousands, except
per share data
<CAPTION>
June 28, June 29, July 1, July 2, July 3,
Fiscal year ended: 1997 1996 1995 1994 1993
--------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION AT END OF YEAR
Working capital (Deficit) $(31,397) $144,621 $120,562 $69,989 $57,509
Property, plant and equipment,
net 159,426 176,691 174,163 139,854 140,540
Total assets 416,728 451,121 372,525 283,051 265,626
Long-term debt 5,040 138,510 106,481 46,368 52,253
Common stock subject to
repurchase 4,438 17,750 17,750 - -
Preferred shareholders'
equity <F2> - - - - -
Common shareholders' equity $126,558 $159,010 $163,344 $156,157 $142,255
======== ======== ======== ======== ========
ANALYTICAL & OTHER INFORMATION
Current ratio (compared to 1) 0.89 2.18 2.67 2.02 1.92
Total debt/total
capitalization <F3> 61.2% 55.1% 44.7% 28.4% 33.5%
Return on beginning total
equity NMF NMF 10.3% 11.6% 13.1%
Capital expenditures $11,245 $18,771 $17,251 $19,186 $31,766
Depreciation expense 28,088 28,243 24,817 21,333 18,115
Amortization expense 500 742 598 520 445
Interest expense 13,143 9,359 6,666 4,989 3,816
Cash dividends declared:
Common stock 2,078 4,233 4,073 3,513 3,124
Preferred stock - - - - 1,389
Market capitalization of common
stock at year end $141,075 $247,547 $248,654 $280,738 $186,168
======== ======== ======== ======== ========
All information reflects the three-for-two stock split in the
form of a 50% stock dividend declared on February 28, 1995.
<FN>
<F1> Fully diluted shares.
<F2> In March 1993, the Company repurchased all the preferred stock
issued in January 1992.
<F3> Common stock subject to repurchase classified as debt.
</FN>
WLR Foods, Inc. common stock was first publicly traded in 1988.
2
</TABLE>
<PAGE>
<TABLE>
WLR FOODS, INC. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS-Continued
Dollars in thousands, except
per share data
<CAPTION>
<S> <C> <C> <C> <C> <C>
June 27, June 29, June 30, July 1, July 2,
Fiscal year ended: 1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
OPERATIONS
Net sales $514,465 $502,238 $494,156 $465,951 $381,363
Cost of sales 454,331 434,509 415,803 391,640 335,855
-------- -------- -------- -------- --------
Gross profit 60,134 67,729 78,353 74,311 45,508
Selling, general and
administrative expenses 48,191 50,019 49,595 44,566 37,420
-------- -------- -------- -------- --------
Operating income 11,943 17,710 28,758 29,745 8,088
Interest expense 2,755 928 925 2,037 1,536
Other (income) expense, net (251) (453) (491) 166 (184)
-------- -------- -------- -------- --------
Total other expense, net 2,504 475 434 2,203 1,352
Earnings before income
taxes and minority interest 9,439 17,235 28,324 27,542 6,736
Income tax expense 3,518 6,521 10,895 10,520 2,952
Minority interest 25 33 34 (206) 60
-------- -------- -------- -------- --------
Net earnings before
cumulative effect of change
in accounting 5,896 10,681 17,395 17,228 3,724
Cumulative effect on prior
years of change in accounting - - - - 1,112
-------- -------- -------- -------- --------
Net earnings 5,896 10,681 17,395 17,228 4,836
Less preferred stock dividends 982 - - - -
-------- -------- -------- -------- --------
Net earnings available to
common shareholders $4,914 $10,681 $17,395 $17,228 $4,836
======= ======== ======== ======== ========
PER COMMON SHARE
Net earnings before
cumulative effect of change
in accounting $0.35 $0.68 $1.11 $1.11 $0.24
Cumulative effect on prior
years of change in accounting - - - - 0.07
-------- -------- -------- -------- --------
Net earnings per share
(primary) $0.35 $0.68 $1.11 $1.11 $0.31
Net earnings per share
(fully diluted) 0.35 0.68 1.11 1.11 0.31
Cash dividends declared
(excluding Cassco pooling) 0.21 0.21 0.19 0.18 0.21
Book value 6.44 7.33 6.86 5.86 4.95
Year-end stock price 9.67 12.00 12.33 11.87 5.63
Common shares outstanding
(in thousands):
Average for the year 14,277 15,782 15,645 15,600 15,600
At year end 12,719 15,782 15,782 15,600 15,600
3
</TABLE>
<PAGE>
<TABLE>
WLR FOODS, INC. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS-Continued
Dollars in thousands, except
per share data
<CAPTION>
June 27, June 29, June 30, July 1, July 2,
Fiscal year ended: 1992 1991 1990 1989 1988
--------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION AT END OF YEAR
Working capital $ 40,337 $ 49,532 $ 46,039 $42,914 $35,169
Property, plant and equipment,
net 113,017 88,807 71,414 59,687 53,524
Total assets 207,736 175,329 157,763 142,832 124,810
Long-term debt 38,148 18,678 6,402 7,858 8,995
Common stock subject to
repurchase - - - - -
Preferred shareholders'
equity <F2> 29,507 - - - -
Common shareholders' equity $ 81,881 $115,625 $108,258 $91,455 $77,181
======= ======== ======== ======= =======
ANALYTICAL & OTHER INFORMATION
Current ratio (compared to 1) 1.80 2.42 2.20 2.12 2.03
Total debt/total
capitalization <F3> 32.0% 16.1% 8.5% 13.9% 16.0%
Return on beginning total
equity 5.1% 9.9% 19.0% 22.3% 6.6%
Capital expenditures $36,107 $29,471 $20,360 $16,001 $8,163
Depreciation expense 14,041 11,544 9,932 8,595 7,057
Amortization expense 168 - - - -
Interest expense 2,755 928 925 2,037 1,536
Cash dividends declared:
Common stock 2,854 3,314 2,948 2,643 2,503
Preferred stock 982 - - - -
Market capitalization of
common stock at year end $122,942 $189,378 $194,638 $185,432 $87,880
======== ======== ======== ======== =======
All information reflects the three-for-two stock split in the form of
a 50% stock dividend declared on February 28, 1995.
<FN>
<F1> Fully diluted shares.
<F2> In March 1993, the Company repurchased all the preferred stock
issued in January 1992.
<F3> Common Stock subject to repurchase classified as debt.
</FN>
WLR Foods, Inc. common stock was first publicly traded in 1988.
4
</TABLE>
<PAGE>
Exhibit 13.2
MANAGEMENT S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
In fiscal 1996, results of operations for WLR Foods, Inc. (WLR
Foods or the Company) were adversely impacted by significantly higher
grain costs in both its chicken and turkey operations and excess
supplies of poultry and meats which prevented the Company from raising
prices enough to recover these increases. The occurrence of disease
in the turkey operations also raised operating costs. The average
delivered costs paid for corn and soybean meal were approximately 46%
and 23% higher, respectively, than in fiscal 1995. The effects of
disease, and, in particular, Poult Enteritis Mortality Syndrome
(PEMS), include significantly higher than normal mortality rates, poor
feed conversion, irregular growth rates and processing inefficiencies.
In combination, these factors can substantially increase the cost of
producing turkey products.
In fiscal 1997, results of operations were again adversely
impacted by significantly higher delivered costs of soybean meal,
which increased a further 26% over fiscal 1996 levels, and by corn
costs which, although reduced by 6% from fiscal 1996 levels, remained
substantially above historical averages. In addition, overproduction
within the turkey industry led to lower sale prices. Operating
results were further impacted by the recurrence of disease within the
turkey operations, particularly in North Carolina.
While the current costs for corn and soymeal remain substantially
above their historic ranges, the United States Department of
Agriculture forecasts higher inventory levels over the next year. If
realized, higher inventory levels should lead to further reductions in
the prices of these grains. Furthermore, industry-wide turkey
production, as reflected by the number of eggs set in hatcheries and
the number of poults placed in growout facilities, appears to be
declining. Restoring a better balance of supply to demand should help
improve commodity prices for turkey products. In addition, WLR Foods
has implemented even more stringent biosecurity and flock management
practices to minimize the occurrence of disease. The Company has not
experienced any further outbreaks of PEMS year-to-date in fiscal 1998.
If these trends continue, management believes that the Company will be
able to generate substantial improvements in operating margins and
Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) in fiscal 1998, as compared to fiscal 1997.
Results of Operations
1997 Versus 1996
Net sales for fiscal 1997 were $1.014 billion, an increase of
$16.2 million, or 1.6%, as compared to net sales for fiscal 1996 of
$997.6 million. This increase was attributable to a $17 million
increase in chicken sales to $400 million. The increase in chicken
sales was due to a 3% increase in pounds sold (the Goldsboro facility
was in operation for a full year in 1997) and a 1% increase in prices.
Turkey sales increased $5 million to approximately $490 million as a
2% increase in pounds sold offset a 1% decrease in prices.
Cost of sales for fiscal 1997 were $956.9 million, an increase of
$59.0 million, or 6.6%, as compared to $897.9 million for fiscal 1996.
This increase was primarily attributable to the increase in total
pounds sold; a $37 million increase in the cost of corn and soybean
meal consumed by birds processed at the Company s facilities; and
higher growout costs due to the substitution of wheat for corn in feed
early in fiscal 1997.
Gross profit for fiscal 1997 was $56.8 million, a decrease of
$42.9 million, or 43.0%, as compared to $99.7 million for fiscal 1996.
Gross profit as a percentage of sales was 5.6% for fiscal 1997, as
compared to 10.0% for fiscal 1996. The decrease in gross profit was
primarily the result of higher grain costs and operating
inefficiencies attributable to the effects of disease and a change in
feed rations necessitated by the scarcity of corn in the fall of 1996.
These factors were partially offset by higher realized prices on
chicken and turkey products and approximately $15 million annual cost
savings from the Charlotte, North Carolina plant closing, the move to
a single operating shift in the North Carolina turkey processing
operation,
1
<PAGE>
staff reductions and savings from centralized purchasing.
Selling, general and administrative expenses for fiscal 1997 were
$95.7 million, a decrease of $1.6 million, or 1.6%, as compared to
$97.3 million for fiscal 1996. This was the result of a $1.5 million
reduction in general and administrative expense initiated near the end
of fiscal 1996.
Interest expense for fiscal 1997 was $13.1 million, an increase
of $3.8 million over $9.4 million for fiscal 1996. This increase was
attributable primarily to higher borrowing levels and slightly higher
interest rates. The effective tax benefit rate in 1997 was 36.2%
versus 35.9% in 1996.
The net loss for fiscal 1997 was $32.2 million (or $1.86 per
share), an increase of $27.5 million as compared to a net loss of $4.7
($0.27 per share) for fiscal 1996.
Fiscal 1996 Compared to Fiscal 1995
Net sales for fiscal 1996 were $997.6 million, an increase of
$88.9 million, or 9.8%. This increase was primarily attributable to a
$70 million increase in chicken sales to approximately $380 million
due largely to the acquisition of the Goldsboro, North Carolina
complex in September 1995, and a 4% increase in the average price per
pound sold. The $5 million decrease in turkey sales to approximately
$485 million, was due to a 2% decrease in pounds sold, partially
offset by a 1% increase in the average price.
Cost of sales for fiscal 1996 were $897.9 million, an increase of
$112.8 million, or 14.4%, as compared to $785.1 million for fiscal
1995. This increase was primarily attributable to the increase in
total sales pounds and a $58 million increase in corn and soymeal
costs in birds processed during the year.
Gross profit for fiscal 1996 was $99.7 million, a decrease of
$24.0 million, or 19.4%, as compared to $123.7 million for fiscal
1995. Gross profit as a percentage of sales was 10.0% for fiscal
1996, as compared to 13.6% for fiscal 1995. The decrease in gross
profit was primarily the result of higher grain costs, only a portion
of which were recovered through higher turkey and chicken prices, and
costs associated with PEMS in the turkey operations. These were
partially offset by cost savings realized through the move to a single
operating shift in the North Carolina turkey processing operations and
staff reductions in fiscal 1996.
Selling, general and administrative expenses for fiscal 1996 were
$97.3 million, an increase of $5.9 million, or 6.5%, as compared to
$91.4 million for fiscal 1995. This increase was the result of a full
year of operations at the North Carolina turkey processing facilities
versus 44 weeks in fiscal 1995, combined with a $3.4 million increase
in freight costs and a $3.9 million increase in sales expense, both
due to higher sales volumes. These higher expenses were partially
offset by operational efficiencies, a decrease in costs from the
centralization of administrative functions, and the elimination of
bonuses.
Interest expense for fiscal 1996 was $9.4 million, an increase of
$2.7 million, as compared to $6.7 million for fiscal 1995. This
increase was attributable to increased borrowings to cover higher
inventory levels and other operating needs. The effective tax benefit
rate was 35.9% due to limitations on the use of operating losses in
certain states.
The net loss for fiscal 1996 was $4.7 million, or $0.27 per
share, a decrease of $20.8 million as compared to net earnings of
$16.1 million (a profit of $0.90 per share) for fiscal 1995.
Liquidity and Capital Resources
The Company s historical capital resources have included funds
from operations, the public offering of common stock, bank lines of
credit and other borrowings. The primary uses of cash have been to
provide funds for operations, make expenditures for capital
improvements, equipment and facilities, repay indebtedness, pay cash
dividends to shareholders, repurchase shares of common stock and make
acquisitions.
On June 28, 1997, the Company had a net working capital deficit
of $31.4 million, compared to net working capital of $144.6 million
on June 29, 1996. This decrease resulted primarily from the
reclassification of $182 million of long-term debt obligations. As of
June 28, 1997, the Company was not in compliance with the minimum
tangible net worth and the current ratio provisions set forth in its
credit agreements. The Company has secured waivers from its lenders
covering both provisions only as of June 28, 1997.
2
<PAGE>
The Company is exploring alternative sources of financing to
replace a portion of its existing debt and for general corporate
purposes. In addition, the Company is negotiating amendments to the
revolving credit facility.
On June 28, 1997, inventories were $165.6 million, a decrease of
$6.4 million, or 3.7%, as compared to $171.9 million on June 29, 1996.
This decrease resulted primarily from lower levels of turkey finished
goods inventories.
Operating activities generated cash of $10.9 million in fiscal
1997, used $40.3 million in fiscal 1996 and generated $32.7 million in
fiscal 1995. The increase in cash generated in fiscal 1997, as
compared to fiscal 1996, resulted primarily from the reduction of its
accounts receivable, inventories and other assets partially offset by
the operating loss. The decrease in cash generated in fiscal 1996, as
compared to fiscal 1995, resulted primarily from the decrease in net
earnings and increases in accounts receivable, inventories and other
current assets, partially offset by an increase in accounts payable.
Capital expenditures were $11.2 million in fiscal 1997. The
Company also leased equipment totaling $3.0 million using operating
leases. Capital expenditures in fiscal 1996 totaled $18.8 million.
In addition, the Company spent $16.6 million to acquire the Goldsboro,
North Carolina chicken complex. Capital expenditures in fiscal years
1997 and 1996 were generally for normal replacements and upgrades of
existing assets and were somewhat constrained by the operating
results. The Company expects capital expenditures in fiscal 1998 to
range from $20 million to $25 million to cover normal replacement and
upgrades of existing facilities, of which approximately $8.0 million
will be used to fund construction of a new hatchery and implement a
second shift at the Goldsboro, North Carolina chicken facility.
Management believes that expanding production will enable the Company
to leverage its fixed plant expenses at Goldsboro over a significantly
larger volume of product, thereby minimizing per unit product costs.
In fiscal 1997, the Company repurchased $13.3 million of common
stock in a private transaction. Under the terms of the private
transaction, the final repurchase of common stock for $4.4 million was
completed shortly after the close of the fiscal 1997 year. This
eliminated the Company s obligation to repurchase common stock.
Including the common stock subject to repurchase as debt, total debt
to total capital was 61.2% at June 28, 1997, an increase from 55.1% at
June 29, 1996. The Company targets a total debt to total capital
ratio of 40% to 45%.
Accounting Matters
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings
per Share" and SFAS No. 129, Disclosure of Information about Capital
Structure." SFAS No. 128 establishes new standards for computing and
presenting earnings per share. SFAS No. 129 establishes standards for
disclosing information about an entity s capital structure. Both SFAS
Nos. 128 and 129 are effective for financial statements issued for
periods ending after December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-
purpose financial statements. SFAS 131 requires that companies report
certain information about operating segments in complete sets of
financial statements and in condensed financial statements of interim
periods issued to shareholders. Both SFAS Nos. 130 and 131 are
effective for fiscal years beginning after December 15, 1997.
The Company does not believe the adoption of these Statements of
Financial Accounting Standards will have a significant impact on the
Company s financial condition or results of operations.
This report contains certain forward-looking statements which are
based on management's current views and assumptions, and involve risks
and uncertainties that could significantly affect expected results.
WLR Foods' actual results may differ materially from those in the
forward-looking statements. For example, operating results may be
affected by external factors such as: actions of competitors, changes
in laws and regulations, including changes in governmental
interpretations of regulations and changes in accounting standards,
customer demand and fluctuations in the cost and availability of feed
ingredients. Stockholders may review reports filed with the
Securities and Exchange Commission for a more detailed description of
3
<PAGE>
the uncertainties and other factors that could cause actual results to
differ materially from such forward-looking statements.
4
Exhibit 13.3
Consolidated Financial Statements and Notes to Consolidated financial
Statements
<TABLE>
WLR Foods, Inc. and Subsidiaries
Consolidated Statements of Operations
<CAPTION>
Dollars in thousands, except per share data
Fiscal years ended June 28, 1997, June 29, 1996
and July 1, 1995 1997 1996 1995
- ----------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Net sales (Note 11) $1,013,777 $997,632 $908,776
Cost of sales (Note 11) 956,948 897,892 785,085
---------- -------- --------
Gross profit 56,829 99,740 123,691
Selling, general and administrative expenses 95,728 97,324 91,420
---------- -------- --------
Operating income (loss) (38,899) 2,416 32,271
Other expense:
Interest expense (Note 4) 13,143 9,359 6,666
Other expense (income), net (1,646) 321 (332)
---------- -------- --------
Other expense, net 11,497 9,680 6,334
Earnings (loss) before income taxes and minority
interest (50,396) (7,264) 25,937
Income tax expense (benefit)(Note 7) (18,260) (2,610) 9,749
Minority interest in net earnings of consolidated
subsidiary 47 32 55
---------- -------- --------
Net Earnings (loss) $ (32,183) $ (4,686) $ 16,133
---------- -------- --------
Net Earnings (loss) per common share $ (1.86) $ (0.27) $ 0.90
========== ======== ========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
1
<PAGE>
<TABLE>
WLR Foods, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
Dollars in thousands,
June 28, 1997 and June 29, 1996 1997 1996
- ------------------------------- ------ ------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 283 $ 724
Accounts receivable, less allowance for doubtful accounts of
$1,550 and $708 72,462 79,932
Inventories (Note 3) 165,551 171,946
Income taxes receivable 4,567 10,802
Other current assets 2,301 4,275
-------- --------
Total current assets 245,164 267,679
Property, plant and equipment, net (Note 4) 159,426 176,691
Deferred income taxes (Note 7) 4,996 -
Other assets 7,142 6,751
-------- --------
Total Assets $416,728 $451,121
======== ========
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable to banks (Note 5) $ 4,031 $ 30,776
Current maturities of long-term debt (Note 5) 186,391 7,983
Excess checks over bank balances 12,118 14,788
Trade accounts payable 35,005 31,989
Accrued expenses 26,657 23,887
Deferred income taxes (Note 7) 12,359 12,574
Other current liabilities - 1,061
-------- --------
Total current liabilities 276,561 123,058
Long-term debt, excluding current maturities (Note 5) 5,040 138,510
Deferred income taxes (Note 7) - 8,849
Minority interest in consolidated subsidiary 592 552
Other liabilities and deferred credits 3,539 3,392
Commitments and other matters (Notes 6, 8, 10, and 11)
Common stock subject to repurchase (Note 8) 4,438 17,750
Shareholders' equity (Notes 8 and 9)
Common stock, no par value 64,206 61,407
Additional paid-in capital 2,974 2,974
Retained earnings 59,378 94,629
-------- --------
Total shareholders' equity 126,558 159,010
-------- --------
Total Liabilities and Shareholders' Equity $416,728 $451,121
======== ========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
2
<PAGE>
<TABLE>
WLR Foods, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<CAPTION>
Dollars and shares in thousands,
except per share data Additional
Fiscal years ended June 28, 1997, Common Stock Paid In Retained
June 29, 1996 and July 1, 1995 Shares Amount Capital Earnings Total
- ------------------------------------------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Balance at July 2, 1994 16,514 $ 61,416 $3,253 $91,488 $156,157
Net Earnings 16,133 16,133
Cash dividends declared-$0.22 per share (4,073) (4,073)
Issuance of common stock for acquisition
of businesses 1,775 10,650 10,650
Common stock issued under Stock Option
Plan including tax benefit of $182 29 173 173
Other common stock issued 38 563 563
Common stock repurchased (1,058) (16,020) (239) (16,259)
------ ------ ------ ------- -------
Balance at July 1, 1995 17,298 56,782 3,014 103,548 163,344
Net loss (4,686) (4,686)
Cash dividends declared-$0.24 per share (4,233) (4,233)
Issuance of common stock for acquisition
of businesses (Note 2) 457 6,028 6,028
Common stock issued under Stock Option Plan
including tax benefit of $104 20 78 78
Other common stock issued 102 1,298 1,298
Common stock repurchased (195) (2,779) (40) (2,819)
------ ------ ------ ------- -------
Balance at June 29, 1996 17,682 61,407 2,974 94,629 159,010
Net loss (32,183) (32,183)
Cash dividends declared-$0.12 per share (2,078) (2,078)
Stock dividend 85 976 (990) (14)
Other common stock issued 161 1,823 1,823
Common stock repurchased (Note 8) (1,331) - -
------ ------ ------ ------- -------
Balance at June 28, 1997 16,597 $ 64,206 $2,974 $59,378 $126,558
====== ======= ====== ======= ========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
WLR Foods, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
Dollars in thousands
Fiscal years ended June 28, 1997, June 29, 1996
and July 1, 1995 1997 1996 1995
- ----------------------------------------------- ------- ------- ------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings (loss) $(32,183) $(4,686) $16,133
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation 28,088 28,243 24,817
(Gain) loss on sales of property, plant and equipment 772 67 (218)
Deferred income taxes (14,060) 2,339 1,919
Other, net 286 395 498
Change in operating assets and liabilities net of
acquired businesses:
(Increase) decrease in accounts receivable 7,470 (16,583) 4,069
(Increase) decrease in inventories 6,395 (43,233) (14,430)
(Increase) decrease in other current assets 8,209 (11,766) (878)
Increase (decrease) in accounts payable 3,016 3,298 (2,713)
Increase in accrued expenses and other 2,917 1,656 3,500
------- ------- -------
Net cash provided by (used in ) operating activities 10,910 (40,270) 32,697
Cash Flows From Investing Activities:
Additions to property, plant and equipment (11,245) (18,771) (17,251)
Acquisition of businesses (200) (10,565) (42,489)
Proceeds from sales of property, plant and equipment 424 833 1,505
(Additions to) proceeds from dispositions of other assets (677) 819 302
Minority interest in net earnings of consolidated subsidiary,
net of dividends 40 25 52
------- ------- -------
Net cash used in investing activities (11,658) (27,659) (57,881)
Cash Flows From Financing Activities:
Issuance of long-term and revolver debt 74,031 70,776 74,141
Reduction of long-term debt (55,838) (8,016) (25,020)
Issuance of common stock 1,235 1,376 736
Repurchase of common stock (13,312) (2,819) (16,259)
Increase (decrease) in excess checks over bank balances (2,670) 10,840 (4,563)
Dividends paid (3,139) (4,210) (3,916)
------- ------- -------
Net cash provided by financing activities 307 67,947 25,119
------- ------- -------
Increase (decrease) in cash and cash equivalents (441) 18 (65)
Cash and cash equivalents at beginning of fiscal year 724 706 771
------- ------- -------
Cash and cash equivalents at end of fiscal year $ 283 $ 724 $ 706
======= ======= =======
4
</TABLE>
<PAGE>
<TABLE>
WLR Foods, Inc. and Subsidiaries
Consolidated Statements of Cash Flows Continued
<CAPTION>
<S> <C> <C>
Supplemental cash flow information:
Cash paid (received) for:
Interest $12,297 $8,906 $6,555
Income taxes (10,608) 3,213 8,418
======= ======= =======
</TABLE>
Non-cash financing activities:
In fiscal 1996:
The Company issued 456,936 shares of WLR Foods, Inc. common stock
valued at $6.0 million for the acquisition of New Hope Feeds, Inc.
and a related company. (Note 2)
In fiscal 1995:
The Company issued 1,774,999 shares of WLR Foods, Inc. common
stock valued at $28.4 million including $17.8 million of common
stock subject to repurchase, in conjunction with the
acquisition of Cuddy Farms, Inc. - USA Food Division. (Note 8)
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
WLR Foods, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies and Other Information
Organization
WLR Foods, Inc. and Subsidiaries (WLR Foods or the Company) are
primarily engaged in fully integrated turkey and chicken production,
processing, further processing and marketing. The Company s
operations are predominantly located in the mid-Atlantic region of the
United States. WLR Foods sells products through a variety of selected
national and international retail, food-service and institutional
markets.
Fiscal Year
The Company s fiscal year ends on the Saturday closest to June 30.
Fiscal years 1997, 1996 and 1995 ended on June 28, June 29 and July
1, respectively, and included 52 weeks in each year.
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 significant 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 cost 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.
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.
The Company uses futures contracts and forward purchases to hedge the
risk of fluctuating grain prices. The results of closed hedging
transactions become part of the cost of the related inventory items,
and gains and losses in the market value of open hedging contracts are
reported as an adjustment to the carrying amount of the hedged item.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
computed using the straight-line method over the useful lives of the
respective assets. In general, the estimated useful lives for
computing depreciation are: 15 to 20 years for buildings; 3 to 5 years
for machinery and equipment; and 4 to 6 years for transportation
equipment. The costs of maintenance and repairs are charged to
operations, while costs associated with renewals, improvements, and
major replacements are capitalized.
Income Taxes
Income taxes are accounted for under the asset and liability method.
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 and operating loss and tax credit
carryforwards. 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 effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
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 (17,276,274 shares, 17,527,876 shares and 17,858,942
shares in 1997, 1996 and 1995, respectively).
6
<PAGE>
Financial Instruments
The estimated fair value of financial instruments has been determined
by the Company using available market information. Except for
financial instruments used for hedging and debt instruments (Notes 3
and 5), the carrying amounts of all financial instruments approximate
their fair values due to their short maturities.
Accounting Change
In fiscal year 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS
No. 121 requires companies to review assets for impairment whenever
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of this statement did not have an impact on
the Company s consolidated financial statements.
Stock-Based Compensation
In fiscal year 1997, the Company also adopted Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock Based
Compensation. As permitted under SFAS No. 123, the Company continues to
account for employee stock option plans using the intrinsic value
method of accounting (Note 9).
Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires the Company to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those
estimates.
Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform with
fiscal 1997 presentations.
2. Business Acquisitions
The transaction discussed here has been accounted for as a purchase,
and, accordingly, the consolidated financial statements herein include
the net assets acquired at fair value and the results of operations of
the acquired business from the date of acquisition.
On September 29, 1995, the Company acquired substantially all of the assets
of New Hope Feeds, Inc. and an affiliated company for $10.6 million in cash,
including costs, and $6.0 million in stock. The assets included a new
chicken processing facility, a feedmill, a hatchery, and related
operating equipment. The transaction was recorded as follows:
Dollars in thousands
Inventories $ 2,864
Other current assets 283
Property, plant and equipment 12,900
Other assets 2,537
-------
Total assets acquired 18,584
Cash paid (including costs) 10,565
Issuance of common stock 6,028
------
Total liabilities assumed $ 1,991
=======
3. Inventories
A summary of inventories at June 28, 1997 and June 29, 1996 follows:
Dollars in thousands 1997 1996
-------- --------
Live poultry and breeder flocks $ 74,984 $ 71,263
Processed poultry and meat products 53,981 66,895
Packaging supplies, parts and other 17,188 18,046
Feed, grain and eggs 19,398 15,742
-------- --------
Total inventories $165,551 $171,946
======== ========
7
<PAGE>
The notional amounts of grain futures contracts were $21.2 million at
June 28, 1997. The fair value of all derivative instruments used in
hedging at June 28, 1997 was $19.3 million. There were no outstanding
amounts at June 27, 1996.
4. Property, Plant and Equipment
WLR Foods' investment in property, plant and equipment at June 28,
1997 and June 29, 1996 was as follows:
Dollars in thousands 1997 1996
-------- --------
Land and improvements $ 22,161 $ 21,348
Buildings and improvements 119,190 116,006
Machinery and equipment 179,243 172,280
Transportation equipment 26,720 28,871
Construction in progress 2,443 5,764
-------- --------
349,757 344,269
Less accumulated depreciation 190,331 167,578
-------- --------
Property, plant and equipment, net 159,426 176,691
======== ========
The company capitalized interest costs with respect to certain major
construction projects of $91,000, and $146,000 in fiscal years 1996
and 1995, respectively. The Company did not have any capitalized
interest costs in fiscal year 1997.
5. Long-Term Debt and Bank Revolving Credits
Long-term debt and other credit facilities at June 28, 1997 and June
29, 1996 consisted of the following obligations:
<TABLE>
Dollars in thousands 1997 1996
<CAPTION>
<S> <C> <C>
------- -------
Fixed Rate Notes:
9.41% Senior Unsecured Notes due 2001 $18,000 $ 21,000
7.47% Senior Unsecured Notes due 2007 22,000 22,000
Variable Rate Notes:
Unsecured Bank Term Note due 2002 - 20,536
Unsecured Bank Term Note due 1997 - 30,000
Revolving Credit Notes:
Unsecured Bank Revolving Credit Note
due 1998 and 1997, respectively 4,031 776
Unsecured Bank Revolving Credit Note
due 1998 - 75,000
Unsecured Bank Revolving Credit Note
due 2000 145,000 -
Other Notes:
Notes with various terms and rates 6,431 7,957
------- -------
Total debt 195,462 177,269
Less debt reclassed as current due to the
Company failing to meet certain covenants 182,000 -
Less revolving debt maturing in less
than 1 year 4,031 776
Less term note maturing in less than
1 year - 30,000
Less current maturities of long term debt 4,391 7,983
------- -------
Long-term debt and revolving debt,
excluding current maturities $ 5,040 $138,510
======= =======
</TABLE>
The 9.41% Senior Unsecured Notes have $3 million principal payments
due in May of each year through 2000. In 2001, a final balloon
payment of $9 million is due. Interest is payable semiannually.
The 7.47% Senior Unsecured Notes due 2007 were placed in June 1995.
8
<PAGE>
The notes require interest payments on a semiannual basis through
maturity. Annual principal payments of $4.4 million begin in 2003.
The financial covenants for both senior notes include fixed charge
coverage, debt-to-capital, tangible net worth and current ratio
requirements.
The Company refinanced its bank debt in February of 1997. The new
facility is a three year $160 million revolver. The new facility
replaces the credit note and two bank term notes. The debt is
unsecured with an interest rate based on the London Inter-Bank
Offering Rate (LIBOR) plus a spread determined by the Company s debt to
capital ratio, calculated on a quarterly basis (7.19% at June 28,
1997). The loan matures in February 2000. On June 28, 1997, $145
million was outstanding, with $11 million available for borrowing.
The facility provides for up to $10 million of standby letters of
credit, including $4 million currently available for new standby
letters of credit. The second revolving credit facility is a $10
million facility. At June 28, 1997, $4 million was outstanding.
The revolving credit agreements contain various covenants, including
maintenance of a minimum tangible net worth, current ratio, fixed
charge coverage and a maximum debt-to-capital ratio. The Company also
modified its fixed rate senior notes to conform to financial covenants
under the revolving credit note. As of January 1, 1997, interest
payments on the fixed rate senior notes were increased by 1% over the
stated rates of the notes but may be returned to original levels under
the conditions as defined in the revised agreements.
The fair value of the fixed rate notes is estimated at $40.2 million based
on quoted market prices for similar issues at June 28, 1997. The carrying
value of all other debt approximates fair value at June 28, 1997.
Required annual principal repayments of long-term debt and revolving
credits with original maturities of greater than one year are as
follows:
Dollars in thousands
- --------------------
Fiscal 1998 $ 8,423
Fiscal 1999 3,930
Fiscal 2000 148,924
Fiscal 2001 9,948
Fiscal 2002 858
The Company s credit agreements with its lenders contain restrictive
covenants which include the maintenance of minimum tangible net worth,
as defined, and certain other financial ratios. As of June 28, 1997,
the Company was not in compliance with the minimum tangible net worth
and the current ratio provisions set forth in its credit agreements.
In August 1997, the Company secured waivers from its lenders covering
both provisions as of June 28, 1997. The Company has reclassified
$182 million of the debt under these agreements as current liabilities
since the waivers only grant the Company relief for the year ended
June 28, 1997.
6. 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.
WLR Foods total contributions under this plan were approximately $1.6
million, $1.7 million and $2.3 million, for fiscal 1997, 1996 and
1995, respectively.
7. Income Taxes
The provision for income taxes from operations was
as follows for fiscal years 1997, 1996 and 1995:
Dollars in thousands 1997 1996 1995
- -------------------- ----- ----- -----
Current:
Federal $ (4,120) $(4,092) $6,211
State (80) (857) 1,619
------- ------- -------
(4,200) (4,949) 7,830
9
<PAGE>
Deferred:
Federal (12,129) 1,788 1,638
State (1,931) 551 281
-------- -------- --------
(14,060) 2,339 1,919
-------- -------- --------
Total tax provision (benefit) $(18,260) $(2,610) $9,749
======== ======== ========
The provision for income taxes differs from the amounts resulting from
applying the federal statutory tax rates (35%) to earnings before income
taxes and minority interest as follows for fiscal years 1997, 1996 and
1995:
Dollars in thousands 1997 1996 1995
- ----------------------------------- ----- ----- -----
Taxes computed using federal
statutory tax rates $(17,639) $(2,542) $9,078
State income taxes,
net of federal tax effect (1,307) (199) 908
Other, net 686 131 (237)
-------- ------- ------
Total tax provision $(18,260) $(2,610) $9,749
======== ======= ======
Effective tax rate 36.2% 35.9% 37.6%
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at June 28,
1997 and June 29, 1996 are listed below:
Dollars in thousands 1997 1996
- --------------------------------------- ----- -----
Deferred tax liabilities:
Inventories, principally due to the
accounting for live inventories on the farm
price method for tax purposes $(18,525) $(18,152)
Plant and equipment, principally
due to differences in depreciation
and capitalized interest (7,718) (9,485)
Investments in subsidiary companies,
principally due to undistributed net
income of the subsidiary (406) (375)
Other (17) -
------- -------
Gross deferred tax liabilities (26,666) (28,012)
Deferred tax assets:
Net operating loss carryforwards 10,000 -
Insurance accruals, principally due to
timing of payments versus the
recording of expenses 2,763 3,281
Deferred compensation, principally due
to accrual for financial reporting purposes 1,008 945
Tax credits 3,079 836
Compensated absences, principally due
to accrual for financial reporting purposes 1,053 970
Accounts receivable, principally due to
allowance for doubtful accounts 605 276
Other 795 281
------- --------
Gross deferred tax assets 19,303 6,589
------- --------
Net deferred tax liability $ (7,363) $(21,423)
======== ========
10
<PAGE>
In assessing the recoverability of deferred tax assets, management
considers whether it is reasonably probable that some portion or all of
the deferred tax assets will not be realized. The ultimate realization
of the deferred tax assets is dependent on the generation of future
taxable income, during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based on the level of
historical operating results, future expectation of taxable income and
reversal of deferred tax liabilities, management believes it is more
likely than not that the Company will realize the benefits of these
deductible differences as reflected at June 28, 1997 and June 29, 1996.
8. Shareholders Equity and Common Stock Subject to Repurchase
In February 1994, the Board of Directors approved the adoption of the
Shareholder Protection Rights Plan (the Plan) wherein 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 $45.33, the number of shares of common stock or
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 commences a tender offer that would result in such person or
group holding a total of 15% or more of the common stock.
Additionally, in either case, rights owned by the acquiring person or
group would automatically become void.
If a person 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 in control of the Company has occurred.
The rights are redeemable by the Company at $0.01 per right prior to
becoming exercisable and expire 10 years from issuance. WLR Foods has
100,000,000 shares of common stock authorized, with 16,597,114
outstanding on June 28, 1997, and 17,681,893 outstanding on June 29,
1996. Additionally, there are 50,000,000 shares of preferred stock
authorized with none outstanding as of June 28, 1997 or June 29, 1996.
The Common Stock Subject to Repurchase arises due to WLR Foods
commitment to repurchase the shares held by a trustee on behalf of
Cuddy Farms, Inc. In January 1997, the Company entered into an
agreement to repurchase the 1,774,999 shares (approximately 10% of the
outstanding shares of its common stock) from Cuddy Farms, Inc. at $10
per share, in a private transaction. Fifty percent of the shares were
repurchased in January 1997, 25% were repurchased in March 1997, and
the final 25% will be repurchased early in fiscal year 1998.
9. Stock Option and Stock Purchase Plans
Stock Option Plans
WLR Foods 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 after three
years, with one-third vesting each year after the date of grant.
The options are exercisable at varying dates not to exceed 10
years from the date of grant.
11
<PAGE>
The changes in the outstanding common shares under option for
fiscal 1997, 1996, and 1995 are listed below:
Common shares Weighted Average
under option Exercise Price
- ------------------------------- ------------- -------------
Outstanding at July 2, 1994 742,875 $14.21
Exercised (137,625) $12.33
Granted in fiscal 1995 163,000 $15.00
-------- ------
Outstanding at July 1, 1995 768,250 $14.71
Canceled or expired (110,120) $13.59
Exercised (148,255) $11.92
Granted in fiscal 1996 190,500 $14.13
-------- ------
Outstanding at June 29, 1996 700,375 $15.08
Canceled or expired (159,125) $11.92
Granted in fiscal 1997 178,750 $8.31
-------- ------
Outstanding at June 28, 1997 720,000 $13.85
======== ======
There were 385,247, 376,333 and 452,875 shares exercisable under
option with weighted average exercise prices of $16.21, $14.99
and $15.31 at fiscal 1997, 1996 and 1995 respectively. The
following table summarizes information about stock options
outstanding as of June 28, 1997:
Stock Options Stock
Options
Outstanding: Exercisable:
- --------------------- --------------------------------
Weighted
Average
Remaining Contractual
Exercise Price Shares Life (Years) Shares
- -------------- ---------- -------------- --------
$8.310 178,750 10.0 -
14.125 171,250 9.0 57,080
14.666 128,625 1.0 128,625
15.000 129,250 7.9 87,417
20.000 112,125 1.7 112,125
------- -------
Total 720,000 385,247
======= =======
Accounting for Stock Option Plans
The Company has elected to account for its employee stock option plans
using the intrinsic value method of accounting. Accordingly, no
compensation cost has been recognized in the accompanying financial
statements because the exercise price of the stock options equals the
market price of the underlying stock on the date of grant.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123. Assuming the Company accounted for its
employee stock options using the fair value method, the Company's net
income and earnings per share would approximate the pro forma amounts
indicated below:
Fiscal years ended
Dollars in thousands June 28, 1997 June 29, 1996
- -------------------- --------------- -------------
Net loss
As Reported $(32,183) $(4,686)
Pro Forma (32,398) (4,686)
Net loss per common share
As Reported $(1.86) $(0.27)
Pro Forma (1.88) (0.27)
Note: The pro forma disclosures shown may not be representative of the
effects on reported net income in future years.
12
<PAGE>
The fair value of each stock option grant used to compute pro forma
net income and net income per share disclosures is estimated at the
time of the grant using the Black-Scholes option-pricing model. The
weighted-average assumptions used in the model are as follows:
1997 1996
---- ----
Expected dividend yield 1.1% 1.7%
Expected volatility 43% 3%
Risk-free interest rate 6.8% 6.6%
Expected term (in years) 10 10
Using these assumptions in the Black-Scholes model, the weighted
average fair value of options granted during 1997 and 1996 is $0.6
million and $1.1 million, respectively.
On October 29, 1994, the shareholders of WLR Foods approved the
Poultry Producer Stock Purchase Plan and amended and restated the
Employee Stock Purchase Plan. These plans allow contract producers
and employees to purchase stock at a 10% discount from the market
price. All shares must be held in the plans for a period of two years.
Upon termination of employment or contract, participants are
terminated from the respective plans.
10. Leases
WLR Foods has entered into various operating lease agreements for
machinery and equipment. The leases are noncancelable and expire on
various dates through 2004. Total rent expense was approximately $5.7
million, $3.5 million and $2.7 million for fiscal 1997, 1996, and
1995, respectively. The following schedule presents the future
minimum rental payments required under the operating leases that have
initial or remaining noncancelable lease terms in excess of one year
as of June 28, 1997:
Dollars in thousands
- --------------------
Fiscal 1998 $2,025
Fiscal 1999 1,719
Fiscal 2000 1,290
Fiscal 2001 1,028
Fiscal 2002 807
Fiscal 2003 and thereafter 697
------
Total minimum lease payments $7,566
======
11. Related Party Transactions
Certain directors of WLR Foods are contract growers of live poultry
for 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 each fiscal year presented.
As a result of an August 1994 acquisition, Cuddy Farms, Inc. (as an
affiliate of Cuddy International) became a related party. The
transactions include poultry purchases and feed sales to Cuddy Farms
at pricing formulas established when the acquisition
was completed. The contract terms are through 1998 with extensions
available.
Transactions with these related parties during the past three fiscal
years are as follows (Dollars in thousands):
Purchases from Sales to
related parties related parties
--------------- ---------------
Fiscal 1997 $23,381 $ 8,998
Fiscal 1996 25,433 10,237
Fiscal 1995 21,020 7,939
In management's opinion, all related party transactions are conducted
under normal business conditions, with no preferential treatment given
to related parties.
13
<PAGE>
12. Selected Quarterly Financial Data(Unaudited)
<TABLE>
The unaudited summary of quarterly results for fiscal 1997 and 1996
follows:
<CAPTION>
Dollars in thousands except
per share data
Fiscal year ended June 28, 1997 First Second Third Fourth
- ------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $272,135 $264,424 $222,225 $254,993
Operating loss (9,621) (6,225) (12,010) (11,043)
Net loss (8,095) (5,368) (9,637) (9,083)
Per share data:
Net loss per common share $ (0.46) $ (0.30) $ (0.56) $ (0.55)
Cash dividends declared per
common share $ - $ 0.12 $ - $ -
Stock dividend declared per
common share(in shares) - - 0.00525 0.00640
Market price(bid) - high 13.50 13.50 12.88 10.13
- low 11.13 11.38 9.50 8.13
Fiscal year ended June 29, 1996 First Second Third Fourth
- ------------------------------- ------- ------- ------- -------
Net sales $250,798 $267,795 $216,263 $262,776
Operating income (loss) 8,947 9,919 (9,274) (7,176)
Net earnings(loss) 4,296 4,843 (7,062) (6,763)
Per share data:
Net earnings (loss) per common share $ 0.25 $ 0.28 $ (0.40) $ (0.38)
Cash dividends declared per
common share $ 0.06 $ 0.06 $ 0.06 $ 0.06
Market price(bid) - high 14.50 16.50 16.25 14.00
- low 12.75 13.25 12.50 11.75
</TABLE>
Per share calculations are based on each stand alone period presented;
therefore, the annual per share results may not be the sum of the four
quarters.
14
<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 June 28, 1997 and June 29,
1996 and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the fiscal years in
the three-year period ended June 28, 1997. 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 reason-
able 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 June 28, 1997 and
June 29, 1996 and the results of their operations and their cash
flows for each of the fiscal years in the three-year period ended
June 28, 1997, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Richmond, Virginia
August 20, 1997
Exhibit 21
Subsidiary State of Incorporation
Wampler Foods, Inc. Virginia
P. O. Box 7275
Broadway, VA 22815
Cassco Ice & Cold Storage, Inc. Virginia
75 W. Bruce Street
Harrisonburg, VA 22801
<PAGE>
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, No 33-63364 and No. 33-55649),
on Form S-3 (No. 33-56775) and on Form S-3(D) (No. 33-54692) of WLR
Foods, Inc. of our reports dated August 20, 1997, relating to the
consolidated balance sheets of WLR Foods, Inc. and subsidiaries as of
June 28, 1997 and June 29, 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each
of the fiscal years in the three-year period ended June 28, 1997, and
the related schedule, which reports appear or are incorporated by
reference in the June 28, 1997 annual report on Form 10-K of WLR
Foods, Inc.
KPMG PEAT MARWICK LLP
Richmond, Virginia
September 25, 1997
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
Robert T. Ritter, or either of them (with full power to each of them
to act alone) as his or her attorneys-in-fact and agents for him or
her 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.
_8/20/96____ /s/ John J. Broaddus________________(SEAL)
Date John J. Broaddus
_8/20/96____ /s/ Jane T. Brookshire______________(SEAL)
Date Jane T. Brookshire
_8/20/96____ /s/ George E. Bryan_________________(SEAL)
Date George E. Bryan
_8/20/96____ /s/ Charles L. Campbell_____________(SEAL)
Date Charles L. Campbell
_8/20/96____ /s/ Stephen W. Custer_______________(SEAL)
Date Stephen W. Custer
_8/20/96____ /s/ Calvin G. Germroth______________(SEAL)
Date Calvin G. Germroth
_8/20/96____ /s/ William H. Groseclose___________(SEAL)
Date William H. Groseclose
_8/20/96____ /s/ J. Craig Hott___________________(SEAL)
Date J. Craig Hott
_8/20/96____ /s/ Herman D. Mason_________________(SEAL)
Date Herman D. Mason
_8/20/96____ /s/ Chas. Wampler, Jr.______________(SEAL)
Date Charles W. Wampler, Jr.
_8/20/96____ /s/ William D. Wampler______________(SEAL)
Date William D. Wampler
_8/21/96____ /s/ Henry L. Holler_________________(SEAL)
Date Henry L. Holler
_8/21/96____ /s/ James L. Keeler_________________(SEAL)
Date James L. Keeler
_8/20/96____ /s/ James L. Mason__________________(SEAL)
Date James L. Mason
_8/20/96____ /s/ V. Eugene Misner________________(SEAL)
Date V. Eugene Misner
_8/20/96____ /s/ Robert T. Ritter________________(SEAL)
Date Robert T. Ritter
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-END> JUN-28-1997
<CASH> 283
<SECURITIES> 0
<RECEIVABLES> 73,999
<ALLOWANCES> 1,537
<INVENTORY> 165,551
<CURRENT-ASSETS> 245,164
<PP&E> 349,757
<DEPRECIATION> 190,331
<TOTAL-ASSETS> 416,728
<CURRENT-LIABILITIES> 276,561
<BONDS> 5,040
0
0
<COMMON> 64,206
<OTHER-SE> 62,352
<TOTAL-LIABILITY-AND-EQUITY> 416,728
<SALES> 1,013,777
<TOTAL-REVENUES> 1,013,777
<CGS> 956,948
<TOTAL-COSTS> 956,948
<OTHER-EXPENSES> 95,728
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,143
<INCOME-PRETAX> (50,396)
<INCOME-TAX> (18,260)
<INCOME-CONTINUING> (32,183)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,183)
<EPS-PRIMARY> (1.86)
<EPS-DILUTED> 0
</TABLE>
