September 29, 1997
Dear WLR Foods, Inc. Shareholder:
You are cordially invited to attend our annual meeting of
shareholders on Saturday, October 25, 1997 at 10:00 a.m. at Turner
Ashby High School, Bridgewater, Virginia. A map to the High School is
on the back of this Proxy Statement. Following the meeting, we will
have a lunch featuring our products. If you plan to attend the
meeting, please sign and return the enclosed reply postcard.
Also enclosed in this mailing is formal notice of the meeting, a
proxy and a Proxy Statement detailing the matters upon which the
shareholders will act at the annual meeting. Our Company's Annual
Report for fiscal year ended June 28, 1997 is also enclosed.
We urge you to complete, date and sign the enclosed proxy, and
return it as soon as possible, even if you plan to attend the meeting.
You may use the enclosed postage prepaid envelope to return both your
reply postcard and the proxy.
On behalf of everyone at WLR Foods, I thank you for your
continued support. I look forward to seeing you at our annual
meeting.
Sincerely,
/S/ James L. Keeler
James L. Keeler
Chief Executive Officer
and President
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF WLR FOODS, INC.
The annual meeting of shareholders of WLR Foods, Inc. will be
held on Saturday, October 25, 1997, at 10:00 a.m. at Turner Ashby High
School, 800 N. Main Street, Bridgewater, Virginia, for the following
purposes:
1. To elect four Class A directors to serve until the annual
meeting of shareholders in 2000.
2. To ratify the appointment of KPMG Peat Marwick LLP as
independent auditors for the fiscal year ending June 27,
1998.
3. To transact such other business as may properly come before
the meeting. The Board of Directors knows of no such
business at this time.
Only shareholders of record at the close of business on August
29, 1997 are entitled to notice of and to vote at the annual meeting
or any adjournments of the annual meeting.
To assure that your shares are represented at the annual meeting,
please complete, date and sign the enclosed proxy, and return it as
soon as possible in the enclosed postage prepaid envelope. You may
revoke your proxy at any time prior to the commencement of the annual
meeting.
By Order of the Board of Directors,
/s/ Robert T. Ritter
Robert T. Ritter
Secretary
Broadway, Virginia
September 29, 1997
<PAGE>
WLR FOODS, INC.
P. O. Box 7000
Broadway, Virginia 22815-7000
(540) 896-7001
PROXY STATEMENT
This Proxy Statement is furnished in connection with the
solicitation of proxies for use at the annual meeting of shareholders
of WLR Foods, Inc. (the Company) to be held Saturday, October 25,
1997, at 10:00 a.m. at Turner Ashby High School, 800 N. Main Street,
Bridgewater, Virginia, and at any adjournments thereof (the Annual
Meeting). The accompanying proxy is solicited by the Board of
Directors of the Company (the Board). The approximate mailing date of
this Proxy Statement and the accompanying proxy is September 29, 1997.
Our Company's Annual Report for the fiscal year ended June 28, 1997 is
being mailed to the Company's shareholders concurrently with this
Proxy Statement but should not be considered proxy solicitation
material.
All properly executed proxies delivered pursuant to this
solicitation will be voted at the Annual Meeting according to the
instructions thereon. In the absence of such instructions, such
proxies will be voted "FOR" the proposals detailed herein. Any person
signing and mailing the enclosed proxy may revoke the proxy at any
time prior to the commencement of the Annual Meeting. For each
shareholder who is a participant in the Company's Dividend
Reinvestment and Stock Purchase Plan, Employee Stock Purchase Plan
and/or Poultry Producer Stock Purchase Plan, the accompanying blue
proxy covers the shares of Company common stock in such shareholder's
accounts, as well as shares registered in the shareholder's name.
The cost of the solicitation of proxies will be paid by the
Company. Solicitations will be made by mail, except that, if
necessary, officers, directors and regular employees of the Company
and its affiliates may solicit proxies by telephone, facsimile or
other electronic means or by personal calls. The Company has retained
D.F. King & Co., Inc. to assist in the solicitation of proxies for a
fee of Three Thousand Five Hundred Dollars ($3,500.00) and
reimbursement of expenses. Brokerage houses and nominees will be
requested to forward the proxy solicitation material to the beneficial
owners of WLR Foods stock held of record by such persons, and the
Company will reimburse them for their charges and expenses in this
regard.
OUTSTANDING SHARES AND VOTING RIGHTS
Only shareholders of record at the close of business on
August 29, 1997 will be entitled to vote at the Annual Meeting. As of
such date, the Company had outstanding 16,271,270 shares of its common
stock, no par value, each of which is entitled to one vote at the
Annual Meeting.
A majority of votes entitled to be cast on matters
considered at the Annual Meeting constitutes a quorum. If a share is
represented for any purpose at the Annual Meeting, it is deemed to be
present for purposes of establishing a quorum. Abstentions and shares
held of record by a broker or its nominee (Broker Shares) which are
voted on any matter are included in determining the number of votes
present or represented at the Annual Meeting. Conversely, Broker
Shares that are not voted on any matter will not be included in
determining whether a quorum is present.
If a quorum is established, directors will be elected by a
plurality of the votes cast by shareholders at the Annual Meeting, and
the proposal for the ratification of the independent auditors will be
approved if the votes cast in favor of the proposal exceed the votes
cast opposing. Votes that are withheld and Broker Shares that are not
voted will not be included in determining the number of votes cast.
PRINCIPAL STOCKHOLDERS AND
SHARE OWNERSHIP OF MANAGEMENT
The following table sets forth the number and percentage of
shares of Company common stock held as of July 1, 1997; (i) by each of
the Company's directors; (ii) the executive officers named in the
Summary Compensation Table on page 10; and (iii) by all directors and
current executive officers as a group.
<PAGE>
- ----------------------------------------------------------------------
Name Number Beneficially Owned Percent of Class<F1>
- ----------------------------------------------------------------------
John J. Broaddus 78,264 <F3> *
Jane T. Brookshire 29,282 <F4> *
George E. Bryan 878,495 <F2,F5> 5.4%
Charles L. Campbell 472,897 <F2,F6> 2.9%
Stephen W. Custer 506,857 <F2,F7> 3.1%
Calvin G. Germroth 478,428 <F2,F8> 3.0%
William H. Groseclose 464,584 <F2,F9> 2.9%
Henry L. Holler 40,330 <F10> *
J. Craig Hott 565,923 <F2,F11> 3.5%
James L. Keeler 698,039 <F2,F12> 4.3%
Herman D. Mason 699,655 <F2,F13> 4.3%
James L. Mason 198,770 <F14> 1.2%
V. Eugene Misner 67,809 <F15> *
Robert T. Ritter 9,539 <F16> *
Charles W. Wampler, Jr. 942,300 <F2,F17> 5.8%
William D. Wampler 1,351,737 <F2,F18> 8.4%
All directors and executive 2,964,112 <F2,F19> 18.0%
officers as a group (consisting
of 16 persons, including those
named above with the exception
of Henry L. Holler and V.
Eugene Misner)
_____________________________
[FN]
* Denotes percent ownership not exceeding 1% of the class of common
stock.
<F1> Based on 16,151,035 shares outstanding as of July 1, 1997 plus
shares which members of management have the option to purchase
within 60 days of July 1, 1997.
<F2> Includes 459,334 shares held by Crestar Bank, NA, Voting Trustee
for the benefit of New Hope Feeds, Inc., and others, which must
vote its shares in accordance with the recommendation of the
Board of Directors of the Company as to certain matters submitted
to shareholders. Each director disclaims beneficial ownership in
the shares owned by the New Hope Feeds Voting Trust.
<F3> Includes 42,406 shares owned directly and through the WLR Foods,
Inc. Employee Stock Purchase Plan, 25 shares owned by his wife
and 35,833 shares which Mr. Broaddus has the right to purchase
within 60 days of June 28, 1997 through the exercise of options.
Mr. Broaddus disclaims beneficial interest in the shares held by
his wife.
<F4> Includes 7,357 shares owned directly and through the Employee
Stock Purchase Plan and self-directed retirement accounts, 1
share owned jointly with her husband, 1,424 shares owned by her
husband through his self-directed retirement account, and 20,500
shares which Ms. Brookshire has the right to purchase within 60
days of June 28, 1997 through the exercise of options. Ms.
Brookshire disclaims beneficial interest in the shares owned by
her husband.
2
<PAGE>
<F5> Includes 133,084 shares owned directly and 286,077 shares owned
by his wife. Mr. Bryan disclaims beneficial interest in the
shares held by his wife.
<F6> All shares owned directly, except for shares owned by the New
Hope Feeds Trust, as set forth in Note 2.
<F7> All shares owned directly, except for shares owned by the New
Hope Feeds Trust, as set forth in Note 2.
<F8> All shares owned directly and through his self-directed
retirement account, except for shares owned by the New Hope
Feeds Trust, as set forth in Note 2.
<F9> All shares owned directly and through his self-directed
retirement account, except for shares owned by the New Hope
Feeds Trust, as set forth in Note 2.
<F10> Includes 6,580 shares owned jointly with his wife and 33,750
shares which Mr. Holler has the right to purchase within 60
days of June 28, 1997 through the exercise of options.
<F11> Includes 105,319 shares owned by E. E. Hott, Inc., of which
Mr. Hott is an officer and director, 970 shares owned jointly
with his wife, and 300 shares held by his wife as custodian for
Mr. Hott's two children. Mr. Hott disclaims beneficial
interest in the shares held by his wife as custodian.
<F12> Includes 53,684 shares owned directly and through the Employee
Stock Purchase Plan and self-directed retirement accounts, and
23,771 shares owned by his wife directly and through her
self-directed retirement account, and 161,250 shares which
Mr. Keeler has the right to purchase within 60 days of June 28,
1997 through the exercise of options. Mr. Keeler disclaims
beneficial interest in the shares owned by his wife.
<F13> Includes 187,323 shares owned directly and 52,998 shares held
as trustee for the Louise T. Mason Trust. Mr. Mason disclaims
beneficial interest in the shares held by the Trust.
<F14> Includes 52,371 shares owned directly and through the Employee
Stock Purchase Plan and his self-directed retirement account,
21,646 shares owned jointly with his wife, 1,032 shares owned
by his wife through her self-directed retirement account, 6,826
shares held as custodian for Mr. Mason's two children, and
43,395 shares held as trustee for the Herman D. Mason Trust and
73,500 shares which Mr. Mason has the right to purchase within
60 days of June 28, 1997 through the exercise of options.
Mr. Mason disclaims beneficial ownership in the shares owned by
his wife or held by him as custodian.
<F15> Includes 1,303 shares owned through his self-directed
retirement account, 1,349 shares owned by his wife through her
self-directed retirement account, 32,157 shares owned jointly
with his wife, and 33,000 shares which Dr. Misner has the right
to purchase within 60 days of June 28, 1997 through the
exercise of options. Dr. Misner disclaims beneficial interest
in the shares owned by his wife through her self-directed
retirement account.
<F16> Includes 2,873 shares owned directly and through the Employee
Stock Purchase Plan, and 6,666 shares which Mr. Ritter has the
right to purchase within 60 days of June 28, 1997.
<F17> Includes 140,152 shares owned directly and as general partner
of Wampler Land, 68,321 shares owned by his wife, 194,469
shares held as trustee of the Charles W. Wampler, Sr. Family
Trust, and 80,024 shares held as trustee of the Charles W.
Wampler, Sr. Charitable Annuity Trust. Mr. Wampler disclaims
beneficial interest in the shares owned by his wife or held by
the Trusts.
<F18> Includes 386,612 shares owned directly and as general partner
of Wampler Land, 202,962 shares owned by his wife, 28,336
shares owned by May Meadows Farms, Inc., of which Mr. Wampler
is an officer and director,
3
<PAGE>
194,469 shares held as trustee of the Charles W. Wampler, Sr.
Family Trust, and 80,024 shares held as trustee of the
Charles W. Wampler, Sr. Charitable Annuity Trust. Mr. Wampler
disclaims beneficial interest in the shares owned by his wife
or held by the Trusts.
<F19> This number does not reflect the sum of all of the preceding
numbers of shares beneficially owned by all of the above-named
directors and officers since 2,159 shares held by Charles W.
Wampler, Jr. and William D. Wampler as general partners of
Wampler Land, and 274,493 shares held as trustees by both
Charles W. Wampler, Jr. and William D. Wampler have been taken
into account in determining the number of shares beneficially
owned by each of Charles W. Wampler, Jr. and William D.
Wampler, individually, and the 459,334 shares held by the New
Hope Feeds Voting Trust have been taken into account in
determining the number of shares beneficially owned by each of
the directors. In addition, this amount includes 331,499
shares which the group has the right to purchase within 60 days
of June 28, 1997 through the exercise of options.
</FN>
PROPOSAL ONE: ELECTION OF DIRECTORS
The term of office for the current Class A directors expires
at the Annual Meeting. The Board of Directors has nominated such
directors, namely J. Craig Hott, Herman D. Mason and Charles W.
Wampler, Jr. for election, for a three-year term, by the shareholders
at the Annual Meeting. Messrs. Hott, Mason and Wampler were elected
by shareholders at the 1994 annual meeting.
The persons named as proxies in the accompanying form of
proxy, unless instructed otherwise, intend to vote for the election of
each of these nominees for directors. If any nominee should become
unavailable to serve, the proxy may be voted for the election of a
substitute nominee designated by the Board. The Board has no reason
to believe any of the nominees will be unable to serve if elected.
Any shareholder entitled to vote for the election of
directors at a meeting may nominate persons for election as directors
only if written notice of such shareholder's intent to make such
nomination is given, either by personal delivery or by United States
mail, postage prepaid, to Robert T. Ritter, Secretary, WLR Foods,
Inc., P. O. Box 7000, Broadway, Virginia 22815-7000, not later than
(i) with respect to an election to be held at an annual meeting of
shareholders, 90 days in advance of such meeting, and (ii) with
respect to any election to be held at a special meeting of
shareholders for the election of directors, the close of business on
the seventh day following the date on which notice of such meeting is
first given to shareholders. Each such notice must set forth (i) the
name and address of the shareholder who intends to make the nomination
and of the person or persons to be nominated, (ii) a representation
that such shareholder is a holder of record of stock of the Company
entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in
the notice, (iii) a description of all arrangements or understandings
between such shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by such shareholder,
(iv) such other information regarding each nominee proposed by such
shareholder as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and
Exchange Commission if such nominee had been nominated by the Board of
Directors, and (v) the consent of each nominee to serve as a director
of the Company if elected. The chairman of the shareholders' meeting
may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
The Board recommends election of the Class A
director nominees set forth on the following page.
4
<PAGE>
INFORMATION CONCERNING DIRECTORS AND NOMINEES
Biographical summaries for the three director nominees and
the seven directors continuing in office appear in the following
chart.
<TABLE>
- ----------------------------------------------------------------------------------------
Name and Position Director Principal Occupation
with the Company Age Since During the Last Five Years
- ----------------------------------------------------------------------------------------
<CAPTION>
Directors Continuing in Office
CLASS A DIRECTORS
(to serve until the 2000 annual meeting of shareholders)
<S> <C> <C> <C>
J. Craig Hott 44 1988 Vice President of Hott's Farming, Inc. and Hott's
Ag-Services, Inc.
Herman D. Mason 76 1984 Retired; previously, Chief Executive Officer
Vice Chairman of the Company until 1988
of the Board
Charles W. Wampler, Jr. 81 1984 Poultry and livestock farmer
Chairman of the Board
</TABLE>
<TABLE>
<CAPTION>
CLASS B DIRECTORS
(to serve until the 1998 annual meeting of shareholders)
<S> <C> <C> <C>
Stephen W. Custer 55 1984 President of Custer Associates, Inc.
(consulting firm)
Calvin G. Germroth 73 1988 Broiler producer
James L. Keeler 62 1988 Chief Executive Officer of the Company since
President February 1988
</TABLE>
<TABLE>
<CAPTION>
Director Nominees
CLASS C DIRECTORS
(to serve until the 1999 annual meeting of shareholders)
<S> <C> <C> <C>
George E. Bryan 75 1984 Poultry and livestock farmer
Charles L. Campbell 49 1988 Commissioner of Revenue for Page County,
Virginia; broiler producer
William H. Groseclose 66 1993 Chairman of Harrisonburg Regional Board and
Winchester Regional Board of First Union National
Bank of Virginia; previously Chief Executive Officer
of Shenandoah Valley region of Dominion Bank
William D. Wampler 69 1984 Poultry and livestock farmer
</TABLE>
BOARD MEETINGS AND COMMITTEES
The Board met thirteen times during the fiscal year ended
June 28, 1997. Each director attended at least 75% of the aggregate
of the total number of Board meetings held while he was a director and
5
<PAGE>
the total number of meetings held while he was a director by all
committees of the Board on which he served except for George E. Bryan.
Nonmanagement directors of the Company received $2,000 for attending a
regularly scheduled Board meeting, $500 for specially called Board
meetings (excluding telephonic meetings) and $500 for attending
committee meetings not held in conjunction with Board meetings. In
addition, non-payroll directors received an annual retainer of $13,000
payable in shares of the Company's common stock.
The Company has a standing Audit Committee which currently
consists of George E. Bryan, Charles L. Campbell and J. Craig Hott.
The Audit Committee met twice since last year's annual meeting. The
Audit Committee recommends to the Board the independent audit firm to
be employed by the Company and meets with the independent auditor to
discuss quality of management and financial, accounting and internal
audit procedures. The Audit Committee also monitors the Company's
compliance with applicable requirements of the National Association of
Securities Dealers, Inc. relating to independent directors, and
reviews, at least annually, all related party transactions and
potential conflicts of interest, recommending appropriate action as
needed.
The Company has a standing Nominating Committee which
currently consists of Herman D. Mason, Calvin G. Germroth and
William D. Wampler. The Nominating Committee met twice since last
year's annual meeting, and spent additional time this year focusing on
and discussing the need for more directors on the Board. The
Committee plans to continue its work identifying strong candidates for
future nominations. The Nominating Committee proposes to the Board a
slate of director nominees and terms of office for such nominees for
the Board to consider in recommending to the Company's shareholders
director nominees for election. The Nominating Committee also
proposes nominees for Board appointment as vacancies occur and for
Board committee assignments and vacancies.
The Company has a standing Executive Compensation Committee
which currently consists of Stephen W. Custer and William H.
Groseclose. The Executive Compensation Committee met three times
since last year's annual meeting. The Executive Compensation
Committee determines the annual salary, bonus and other benefits of
the Chief Executive Officer and makes decisions relating to awards to
executive officers and other key personnel pursuant to the Company's
Long-Term Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, the Executive Compensation
Committee consisted of Herman D. Mason, Charles L. Campbell and
William H. Groseclose. As described in the following section entitled
"Certain Relationships and Related Transactions," Mr. Campbell is a
contract grower for the Company. Additionally, Mr. Mason was
considered employed by the Company until his resignation in February,
1994.
CERTAIN TRANSACTIONS
The Company has always been fortunate to have directors and
officers who are actively involved in, and knowledgeable about, the
Company's businesses. As a result, the Company has relationships with
certain directors and their families.
The following table identifies (i) amounts in excess of $60,000
paid by the Company to each of the directors and executive officers,
members of their immediate family, and entities related to the
directors and executive officers who were contract growers with the
Company during the fiscal year ended June 28, 1997, and (ii) amounts
paid to entities related to directors and executive officers which
were contract growers if such payments exceeded five percent of such
entities' gross revenues for such activity during the fiscal year
ended June 28, 1997. All such transactions were on the same bases and
terms as transactions with unrelated parties.
_________________________________________________________________
Directors and Total Amount Received from the
Executive Officers Company and its Subsidiaries
_________________________________________________________________
Charles L. Campbell, Director $ 84,761
J. Craig Hott, Director
Hott's Farming, Inc. $ 233,801
6
<PAGE>
James L. Keeler, President, Chief
Executive Officer and Director
Gregory Keeler, his son $ 148,946
Charles W. Wampler, Jr., Director
C. W. Wampler & Sons $ 112,308
William D. Wampler, Director
May Meadows Farm, Inc. $ 124,691
C. W. Wampler & Sons 112,308
V. Eugene Misner, Vice President of Live
Production of Wampler Foods (retired)
Buckhill Poultry $ 116,714
During the fiscal year ended June 28, 1997, the Company
purchased, either directly or through third-party suppliers, $385,893
of fuel oil and propane from Franklin Oil Co., Inc. of which J. Craig
Hott is a director and minority shareholder. The prices and terms
were comparable to those of other oil companies in the area.
During the fiscal year ended June 28, 1997, the Company paid
$2,500 to Custer Associates, Inc., a consulting firm owned by Stephen
W. Custer, a director of the Company, which assisted with the Company-
wide quality control program. The terms of this arrangement were
competitive and fully disclosed to the Board.
Charles W. Wampler, Jr. and William D. Wampler are brothers and
are uncles of Stephen W. Custer.
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.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
Compensation Philosophy
The Executive Compensation Committee of the Company's Board
of Directors determines the annual salary, bonus and other benefits of
the Company's Chief Executive Officer and makes decisions relating to
stock option awards to executive officers and other key personnel
pursuant to the Company's Long-Term Incentive Plan. The Company's
overall policy regarding executive compensation is to provide
competitive compensation packages that attract and retain qualified
executives and to reward its executives for financial and operating
results, both annual and long-term, which enhance the value of
shareholders' investment in the Company.
Base Salary
The base salary component of executive compensation within
the Company reflects the first goal stated above of attracting and
retaining qualified executives. Based on available figures, the
Company executives' base salaries are competitive with other companies
within Virginia and the industry. Companies considered in determining
executive compensation are not the same as the peer group reflected in
the Stock Price Performance Graph due to the Committee's belief that,
unlike the performance of stock traded on a national market, executive
compensation should be evaluated in comparison with similar companies
in the same geographic area. Periodic increases in base salary are
based on evaluations of past and current performance, competitive
market conditions and Company performance.
With respect to the Chief Executive Officer, the Committee
believes that a significant portion of annual compensation should be
7
<PAGE>
tied directly to Company performance, and that adjustments to base
salary should be consistent with Company-wide salary adjustments.
Accordingly, the Committee has historically adjusted the base salary
of the Chief Executive Officer according to the average percentage
increase for all Company employees.
This holds true for 1997 when, because of the challenges
presented by record grain prices and other external forces, executive
base salaries remained at the same level as the previous year
throughout the Company.
Cash Bonus
The Company's Incentive Bonus Program focuses on the second
goal of the Company's compensation philosophy, that of rewarding
financial and operating results on an annual basis. The Company
developed the Incentive Bonus Program in 1988 with the assistance of
independent executive compensation consultants, and the Program has
been administered since then by the Company's Human Resources
Department for the benefit of executive officers and other key
personnel. The bonus pool is determined annually by reference to the
Company's return on equity (ROE), and each individual's specific bonus
allocation is calculated by multiplying ROE (adjusted for accrued
incentive pay and taxes) by his or her base salary and by a bonus
factor which is based on his or her position within the Company.
Thus, bonuses comprise the part of management compensation that is "at
risk" based on the Company's annual performance. As borne out in the
nine-year history of the Company's Incentive Bonus Program, for years,
such as 1996 and 1997, in which the Company does not have a strong
return on equity, a significant portion of management's annual
compensation is reduced.
Long-Term Incentive Plan
Rewarding Company executives on a long-term basis is
accomplished through the Company's Long-Term Incentive Plan, a stock
option plan approved by the Company's shareholders in 1988. By
encouraging management investment in Company stock, the Plan aligns
management's interests with that of the shareholders: namely, to
enjoy long-term appreciation in the value of the Company's common
stock.
At the Plan's inception, an independent executive
compensation consulting firm recommended the number of options that
should be granted to the Company's executive officers and other key
personnel. The Executive Compensation Committee awarded options at
levels below those initially advised by the consultants and, since
then, has awarded options generally consistent with the first year's
levels.
During the first three years of option grants, all options
were granted at the market price prevailing at the time of the grant.
Due to special circumstances in each of 1992, 1993 and 1994, the
option price was established above the market price in those years.
In 1992, the Committee set the price at the prior year-end market
price rather than the then current market price. The Committee
believed that the prevailing market price plus $3.38 ($2.25 as
adjusted for the 3-for-2 stock split on May 12, 1995) was more
reflective of the true value of the Company's shares at that time. In
1993, the Company completed a public offering of common stock priced
at $22 ($14.67 split-effected) in February and the Committee
established the option price in July at $22 ($14.67 split-effected),
even though the market price on the grant date was $5 lower, or $17
($11.33 split-effected) per share. In 1994, the Company was the
target of an unsolicited tender offer by Tyson Foods, Inc. of $30 per
share; consequently the Committee established the option price at $30
($20 split-effected) instead of the 1994 year-end trading value of
$25.50 ($17 split-effected). In 1995, the Committee returned to its
original practice of establishing the exercise price based on the
current market price. Options granted in 1997 have an exercise price
of $8.3125, the market price of the Company's stock at the end of the
fiscal year.
In 1995, the Company again engaged the services of a
compensation consulting firm to review the Company's Long-Term
Incentive Plan. The consultants made several recommendations
regarding the level of options granted, the term of the options and
whether the Company should grant incentive stock options (ISOs) or
non-qualified options as in the past. The granting of ISOs permits
executives to defer the income tax consequences of their options with
no impact on the Company's earnings. The consultants also recommended
that the Company implement a supplemental employee retirement plan
(SERP) in order for executive compensation to be more competitive with
companies of similar size.
The Company deferred implementation of the SERP recommended
by the consultant. However, the Company accepted the recommendation,
8
<PAGE>
beginning in fiscal year 1995, to grant options with a term of ten
years rather than five years as in the past, and to grant ISOs to the
extent permitted by the current Internal Revenue Code, neither of
which recommendations affect the Company's earnings.
Deferred Compensation
The final significant component of the Chief Executive
Officer's compensation is deferred compensation, serving both goals of
providing a competitive compensation package and rewarding results.
Mr. Keeler's deferred compensation is essentially a retirement plan
with payouts beginning the year after Mr. Keeler retires as Chief
Executive Officer, but payouts are calculated by reference to the
increase in the Company's book value due to earnings over the term of
Mr. Keeler's service. Specifically, 1.5% of the annual increase in
the Company's book value is allocated annually to a deferred
compensation account which, together with accrued interest, is payable
to him in one or more installments beginning in the year after his
retirement. However, if Mr. Keeler's employment is terminated after a
change in control of the Company, the balance of Mr. Keeler's deferred
compensation account becomes payable immediately.
In 1995, the Company established the 1995 Nonqualified
Deferred Compensation Plan (Nonqualified Plan). The purpose of this
nonqualified, unfunded plan is to permit certain members of management
and other employees to supplement their retirement savings beyond the
limits imposed by federal tax law on the Company's Profit Sharing and
Salary Savings Plan and Trust (Profit Sharing Plan). Pursuant to the
Nonqualified Plan, employees may elect to defer a portion of their
salary and bonus until their retirement or other termination. The
Company does not contribute to the Plan. However, to the extent that
deferrals under the Nonqualified Plan reduce a participant's
compensation base for purposes of the Company's contribution to the
Profit Sharing Plan, the Company will credit to the participant's
Nonqualified Plan account an amount equal to the difference between
the Company's actual contribution to the Profit Sharing Plan and the
amount which the Company would have contributed had the participant
not elected to defer an additional amount under the Nonqualified Plan.
Chief Executive Officer Compensation
Due to the financial pressures on the Company caused by
record grain prices and other external forces affecting the industry
as a whole, Mr. Keeler's base salary for the current year remains
unchanged from the previous year. Also, as described in the
discussion of cash bonus above, like all executives, Mr. Keeler's
bonus is a function of the Company's ROE. While Mr. Keeler is
entitled to a guaranteed minimum bonus, he has elected, for the second
consecutive year, not to receive a bonus for 1997. Finally, the
number of stock options awarded to Mr. Keeler under the Long-Term
Incentive Plan remained at the same level as for the past year.
Limitation on Deductibility of Certain Compensation for Federal
Income Tax Purposes
Section 162(m) of the Internal Revenue Code, enacted as part
of the Omnibus Budget Reconciliation Act of 1993, limits the annual
compensation deduction for federal income tax purposes of publicly
held companies, such as WLR Foods, Inc., to $1 million for
compensation paid to each of its chief executive officer and its four
highest compensated executive officers other than the chief executive
officer. However, this limit does not apply to "performance-based"
compensation as defined in that section and the regulations
thereunder.
The Company does not anticipate that the total annual
compensation paid to any executive, including the Chief Executive
Officer, will exceed the $1 million limit, although an executive's
compensation could exceed such limit if the executive were to exercise
all outstanding stock options. Moreover, options granted pursuant to
the Company's Long-Term Incentive Plan currently qualify as
performance-based compensation, and are therefore not subject to the
limitation, because such options are based on a stock price that is no
less than fair market value at the time of the grant. Consequently
the amount of compensation an executive can receive pursuant to the
Long-Term Incentive Plan is based solely on subsequent increases in
the value of the stock. Accordingly, Section 162(m) is expected to
have no impact on the Company during the current fiscal year.
William H. Groseclose
Stephen W. Custer
Executive Compensation Committee Members
9
<PAGE>
SUMMARY COMPENSATION
The Summary Compensation Table below contains information
concerning annual and long-term compensation provided to 1) the
Company's Chief Executive Officer; 2) the other four most highly
compensated executive officers of the Company; and 3) two other
individuals who would have been among the other four most highly
compensated executive officers had they been serving as executive
officers at the end of the Company's fiscal year for all services
rendered to the Company and its subsidiaries for the fiscal years
ending June 28, 1997, June 29, 1996 and July 1, 1995.
<TABLE>
SUMMARY COMPENSATION TABLE
________________________________________________________________________________________________________________________
<CAPTION>
Long Term Other
Annual Compensation Compensation Compensation<F2>
_________________________________________________________ ____________ ________________
Name and Other Annual
Principal Position Year Salary($) Bonus($) Compensation<F1> Options ($)
________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
James L. Keeler 96-97 $266,402 $ 0 - 60,000 $ 3,920
Chief Executive 95-96 256,248 0 - 60,000 4,295
Officer & President 94-95 249,998 116,693 - 60,000 192,425
James L. Mason 96-97 $202,769 $ 0 - 30,000 $ 3,957
President, 95-96 200,000 0 - 30,000 3,263
Wampler Foods, Inc. 94-95 181,866 57,861 - 30,000 4,711
Robert T. Ritter 96-97 $190,000 $ 0 $26,541 20,000 $ 552
Chief Financial Officer 95-96 7,308 40,000 - 20,000 0
Secretary/Treasurer 94-95 0 0 - 0 0
John J. Broaddus 96-97 $181,846 $ 0 - 17,500 $ 3,962
Executive Vice- 95-96 151,750 0 - 17,500 4,113
President 94-95 139,819 27,193 - 11,250 5,107
Wampler Foods, Inc.
Jane T. Brookshire 96-97 $111,846 $ 0 - 10,000 $ 2,622
Vice President 95-96 110,000 0 - 10,000 2,832
Human Resources 94-95 91,035 11,804 - 10,000 3,190
Henry L. Holler 96-97 $171,500 $ 0 - 0 $ 3,448
Senior Sales Advisor 95-96 171,500 0 - 11,250 4,578
Wampler Foods 94-95 138,321 43,348 - 11,250 4,481
V. Eugene Misner 96-97 $126,894 $ 0 - 0 $ 55,658
Vice President of 95-96 171,500 0 - 11,250 4,845
Live Production 94-95 170,311 43,348 - 11,250 4,579
Wampler Foods, Inc. (retired)
_____________________________
<FN>
<F1> Includes $26,009 in relocation expenses paid in connection with
the hiring of Mr. Ritter.
<F2> Includes Company contributions made to the Company's Profit
Sharing and Salary Savings Plan and term life insurance premiums paid
by the Company on behalf of the executive officers. Company
contributions to the Profit Sharing and Salary Savings Plan on behalf
of the named executives during 1996-97 were $3,368 for Mr. Keeler,
$3,397 for Mr. Mason, $3,410 for Mr. Broaddus, $2,237 for Ms.
Brookshire, $3,064 for Mr. Holler and $2,337 for Dr. Misner. During
1996-97 the Company paid life insurance premiums of $552 for Messrs.
Keeler, Ritter and Broaddus and Dr. Misner, $560 for Mr. Mason, $385
for Ms. Brookshire and $384 for Mr. Holler. For Dr. Misner, Other
Compensation also includes severance pay of $52,769 paid during 1996-
97 in connection with his retirement from the Company.
</FN>
</TABLE>
10
<PAGE>
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
__________________________________________________________________________________________________
% of Total
Options Exercise
Options Granted to or Base
Granted Employee in Price Expiration Grant Date
(#) Fiscal Year $/Share Date Present Value<F1>
___________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
James L. Keeler 60,000 33.6 $8.3125 06/28/07 $216,600
James L. Mason 30,000 16.8 $8.3125 06/28/07 $108,300
Robert T. Ritter 20,000 11.2 $8.3125 06/28/07 $72,200
John J. Broaddus 17,500 9.8 $8.3125 06/28/07 $63,175
Jane T. Brookshire 10,000 5.6 $8.3125 06/28/07 $36,100
V. Eugene Misner 0 0 $0 00/00/00 $0
Henry L. Holler 0 0 $0 00/00/00 $0
______________________________
</TABLE>
[FN]
<F1> The values shown reflect a standard application of the Black-
Scholes Option Pricing Model, assuming a risk-free rate of return
of 5.26%, an annualized volatility factor of 43%. Values shown do
not take into account risk factors such as nontransferability and
restrictions on exercisability. The Black-Scholes Model is a
commonly utilized model for valuing options which assumes that the
possibilities of future stock returns (dividends plus stock value
appreciation) resemble a bell shaped curve. The model applies a
statistical analysis to the Company's historical data to project
the value of the options.
</FN>
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
__________________________________________________________________________________________________________
Value of
Number of Unexercised
Unexercised In-The-Money
Options at Options<F2> at
Fiscal<F1> Fiscal
Shares Year-End(#) Year-End($)
Acquired<F1> Value Exercisable/ Exercisable/
Name On Exercise(#) Realized($) Unexercisable Unexercisable
___________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
James L. Keeler 0 $0 161,250/120,000 $0/0
James L. Mason 0 $0 73,500/60,000 $0/0
Robert T. Ritter 0 $0 6,666/33,334 $0/0
John J. Broaddus 0 $0 35,833/32,917 $0/0
Jane T. Brookshire 0 $0 20,500/20,000 $0/0
V. Eugene Misner 0 $0 33,000/0 $0/0
Henry L. Holler 0 $0 33,750/11,250 $0/0
____________________
</TABLE>
[FN]
<F1> Adjusted to give effect to the May 12, 1995 3-for-2 stock split.
<F2> No unexercised options were in the money as of June 28, 1997.
</FN>
EXECUTIVE AGREEMENTS
The Company has an employment agreement with the Chief
Executive Officer which expires June 27, 1998. The agreement governs
Mr. Keeler's compensation, specifically his base salary, bonus,
perquisites and benefits. Pursuant to the agreement, during the
current fiscal year, Mr. Keeler's base salary remains unchanged at
$266,402 and his bonus factor, discussed under "Cash Bonus" on page 8
is 4.0, also the same as last year. Although Mr. Keeler is guaranteed
a bonus of $25,000, in light of the challenges currently facing the
Company, such as the record high grain prices, Mr. Keeler felt it
appropriate to forego his guaranteed bonus for the past fiscal year.
Mr. Keeler's deferred compensation allocation will be calculated at
1.5% of the increase in the Company's book value over each preceding
11
<PAGE>
year, as explained previously under "Deferred Compensation." The
Company has also agreed to provide group health insurance coverage to
Mr. Keeler and his wife for the remainder of their lives, provided he
does not retire before age 65. Mr. Keeler's perquisites and benefits
are consistent with those provided to the Company's senior management.
The Company has entered into severance agreements with each
of James L. Keeler, James L. Mason, Robert T. Ritter, John J.
Broaddus, Jane T. Brookshire and Henry L. Holler (the Severance
Agreements). Pursuant to the Severance Agreements, each of these
individuals is entitled to certain payments (described below) if the
Company terminates his employment during a specified period following
a "Change in Control" of the Company.
For purposes of the Severance Agreements, a "Change in
Control" occurs (A) when an individual, entity or group acquires
beneficial ownership of 20% or more of the combined voting power of
the Company's outstanding stock, subject to certain exceptions set
forth in the executive's Severance Agreement, (B) when individuals
who, as of February 4, 1994, constituted the Board of Directors (the
"Incumbent Board") and individuals whose election, or nomination for
election by the shareholders of the Company, was approved by a vote of
at least seventy-five percent of the directors then comprising the
Incumbent Board (who shall after election be considered members of the
Incumbent Board unless such election occurs as a result of an actual
or threatened election contest or other actual or threatened
solicitation of proxies or consents by or on behalf of a person other
than the Company's Board of Directors) shall cease to constitute a
majority of the Company's Board of Directors, (C) upon the approval by
the shareholders of the Company of a reorganization, merger or
consolidation except in certain instances set forth in the executive's
Severance Agreement, or (D) upon approval by the shareholders of the
Company of the complete liquidation or dissolution of the Company or
the sale or other disposition of all or substantially all of the
assets of the Company, except in certain instances set forth in the
Severance Agreements.
The Severance Agreements for each of Messrs. Keeler, Mason,
Ritter, and Broaddus and for Ms. Brookshire provide that if the
Company terminates his or her employment during the three year period
following a Change in Control of the Company, other than for death,
Cause (willful and continued failure to perform duties or willfully
engaging in illegal conduct, defined more specifically in the
Severance Agreements) or Disability (as defined in the Severance
Agreement), or if he or she resigns for Good Reason (includes an
adverse change in status or position, a reduction in base salary or
benefits, or relocation, defined more specifically in the Severance
Agreements) during such three year period, he or she is entitled to
receive an amount in cash (the Severance Payment) equal to three times
his or her total annual compensation, which includes: (A) the higher
of (x) his or her annual base salary on the date of termination or (y)
his or her annual base salary in effect immediately prior to the
Change in Control and (B) an amount equal to the average of the
bonuses awarded to him or her in each of the three previous years,
including, in the case of Mr. Keeler, any bonuses awarded pursuant to
any deferred compensation arrangements. In the event that such
payments become subject to an excise tax imposed by Section 4999 of
the Internal Revenue Code (or any similar tax), the executive shall be
entitled to receive a "gross-up" payment in respect of such taxes and
in respect of any taxes on such gross-up payment as specified in the
Severance Agreement. These Severance Agreements also provide for the
continuation of employee welfare benefits (such as health insurance)
for three years after termination if his employment is terminated
during such three year period. In addition, Mr. Keeler will be
entitled to receive the Severance Payment and other severance benefits
if he resigns for any reason during the 30-day period immediately
following the first anniversary of a Change in Control. The Severance
Agreement for Mr. Holler is similar to those described above for
Messrs. Mason, Ritter and Broaddus and Ms. Brookshire except it covers
a two year period after a Change in Control, the amount payable is
equal to one and one-half times his total annual compensation, and
employee welfare benefits will continue for one and one-half years if
his employment is terminated during such two year period.
In addition, the Company has entered into a Salary
Continuation Agreement with Mr. Ritter, which provides that, if Mr.
Ritter's employment with the Company is terminated under the
circumstances described in the foregoing paragraph (other than a
Change in Control), the Company will continue to pay to Mr. Ritter his
base salary in effect at the time of his termination for a period of
one year. The Company will also continue to provide health insurance
and life insurance benefits for a period of one year, provided such
continuation is permitted under the terms of the benefit programs and
that the required employee contributions continue to be made. If Mr.
Ritter secures other employment within the one year period, the
benefits provided under the Salary Continuation Agreement will be
reduced by the amount of any similar benefits provided by his new
employer.
12
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The graph on this page presents a comparison of five-year
cumulative total shareholder returns for WLR Foods, Inc., the S&P 500
Index and a Peer Group Index. The graph reflects the annual return
from the Company's five previous fiscal years-end, developed with a
monthly index, assuming dividends are reinvested monthly. The graph
also assumes an initial investment of $100 on June 27, 1992. The Peer
Group Index consists of Cagles, Inc., Golden Poultry Co., Inc., Hudson
Foods, Inc., Pilgrims Pride Corporation and Sanderson Farms, Inc.,
companies within the same industry and with similar equity market
capitalization.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
Among WLR Foods, Comparable Composite, and the S & P 500
6/92 6/93 6/94 6/95 6/96 6/97
Composite 100 141 178 226 231 269
S&P 500 100 115 117 147 185 250
WLRF 100 140 185 156 154 95
PROPOSAL TWO: APPOINTMENT OF INDEPENDENT AUDITORS
KPMG Peat Marwick LLP of Richmond, Virginia, were auditors
for the fiscal year ended June 28, 1997, and are being recommended to
the Company's shareholders for appointment as auditors for the fiscal
year ending June 27, 1998. A representative of KPMG Peat Marwick LLP
is expected to attend the Annual Meeting and will have an opportunity
to make a statement or respond to appropriate questions from
shareholders.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" PROPOSAL TWO.
SHAREHOLDER PROPOSALS
Shareholders are reminded that proposals of shareholders
intended to be presented at the Company's 1998 annual meeting must be
received by the Secretary of the Company, at its principal executive
offices, P. O. Box 7000, Broadway, Virginia 22815-7000, for inclusion
in its proxy statement relating to that meeting, by May 29, 1998.
Upon written request to the Secretary, at the address
given on page one, the Company shall provide shareholders,
without charge, a copy of the Company's annual report on Form
10-K for fiscal year ended June 28, 1997.
By Order of the Board of Directors
/s/ Robert T. Ritter
Robert T. Ritter
Secretary
September 29, 1997
13
<PAGE>
