September 28, 1998
Dear WLR Foods, Inc. Shareholder:
You are cordially invited to attend our annual meeting of
shareholders on Saturday, October 31, 1998 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 the fiscal year ended June 27, 1998 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 the shareholders of WLR Foods, Inc. will be
held on Saturday, October 31, 1998, at 10:00 a.m. at Turner Ashby High
School, 800 N. Main Street, Bridgewater, Virginia, for the following
purposes:
1. To elect one Class A director to serve until the annual
meeting of shareholders in 2000 and to elect four Class
B directors to serve until the annual meeting of
shareholders in 2001.
2. To approve the 1998 Long Term Incentive Plan
3. To ratify the appointment of KPMG Peat Marwick LLP as
independent auditors for the fiscal year ending July 3,
1999.
4. 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 September
4, 1998 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/ Jane T. Brookshire
Jane T. Brookshire
Secretary
Broadway, Virginia
September 28, 1998
<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 31,
1998, 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 28, 1998.
Our Company's Annual Report for the fiscal year ended June 27, 1998 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
September 4, 1998 will be entitled to vote at the Annual Meeting. As
<PAGE>
of such date, the Company had outstanding 16,453,145 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 the shareholders at the Annual Meeting,
and the proposals for the approval of the 1998 Long-Term Incentive
Plan and 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 31, 1998 (i) by each of
the Company's directors, (ii) by the executive officers named in the
Summary Compensation Table on page 10, and (iii) by all directors and
executive officers as a group.
- ---------------------------------------------------------------
Number Beneficially
Name Owned Percent of Class<F1>
- ----------------------------------------------------------------
Keith E. Alessi 462,273 <F2> 2.8%
John J. Broaddus 82,925 <F3> *
George E. Bryan 861,679 <F2,F4> 5.3%
Charles L. Campbell 477,627 <F2,F5> 2.9%
Katherine K. Clark 462,312 <F2,F6> 2.8%
Stephen W. Custer 511,804 <F2,F7> 3.1%
Calvin G. Germroth 483,193 <F2,F8> 2.9%
William H. Groseclose 470,261 <F2,F9> 2.9%
J. Craig Hott 571,096 <F2,F10> 3.5%
James L. Keeler 711,590 <F2,F11> 4.3%
Ruth J. Mack 3,750 <F12> *
Herman D. Mason 702,435 <F2,F13> 4.3%
Ronald E. Morris 4,000 <F14> *
Robert T. Ritter 25,177 <F15> *
2
<PAGE>
Walter F. Shafer, III 11,010 <F16> *
Charles W. Wampler, Jr. 947,111 <F2,F17> 5.8%
William D. Wampler 1,287,284 <F2,F18> 7.8%
All directors and 2,644,368 <F2,F19> 15.9%
executive officers as
a group (consistingof
17 persons, including
those named above but
excluding John J. Broaddus
and Robert T. Ritter)
- --------------------------
[FN]
* Denotes percent ownership not exceeding 1% of the class of
common stock.
<F1> Based on 16,408,458 shares outstanding as of July 31, 1998 plus
shares which members of management have the option to purchase
within 60 days of July 31, 1998.
<F2> Includes 462,273 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 42,901 shares owned directly and through the WLR
Foods, Inc. Employee Stock Purchase Plan, 25 shares owned by
his wife and 39,999 shares which Mr. Broaddus has the right
to purchase within 60 days of July 31, 1998 through the
exercise of options. Mr. Broaddus disclaims beneficial
interest in the shares held by his wife. Mr. Broaddus
ceased to be an officer of the Company as a result of the July
31, 1998 sale of the Company's Cassco Ice & Cold Storage, Inc.
subsidiary.
<F4> Includes 135,539 shares owned directly and 263,867 shares owned
by his wife. Mr. Bryan disclaims beneficial interest in the
shares held by his wife.
<F5> All shares owned directly, except for shares owned by the New
Hope Feeds Trust, as set forth in Note 2.
<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
3
<PAGE>
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 105,992 shares owned by E. E. Hott, Inc., of which
Mr. Hott is an officer and director, 2,681 shares owned
jointly with his wife, and 150 shares held by his wife as
custodian for Mr. Hott's son. Mr. Hott disclaims beneficial
interest in the shares held by his wife as custodian.
<F11> Includes 54,770 shares owned directly and through the Employee
Stock Purchase Plan and his retirement accounts, 23,922 shares
owned by his wife directly and through her self-directed
retirement account, and 170,625 shares which Mr. Keeler has the
right to purchase within 60 days of July 31, 1998 through the
exercise of options. Mr. Keeler disclaims beneficial interest in
the shares owned by his wife.
<F12> All shares are shares which Ms. Mack has the right to purchase
within 60 days of July 31, 1998 through the exercise of options.
<F13> Includes 186,825 shares owned directly and 53,337 shares held as
trustee for the Louise T. Mason Trust. Mr. Mason disclaims
beneficial interest in the shares held by the Trust.
<F14> Includes 3,000 shares owned jointly with his wife and 1,000
shares which Mr. Morris has the right to purchase within 60
days of July 31, 1998 through the exercise of options.
<F15> Includes 5,177 shares owned directly, through the Employee Stock
Purchase Plan, and through his retirement plan, and 20,000 shares
which Mr. Ritter has the right to purchase within 60 days of July
31, 1998 through the exercise of options. Mr. Ritter ceased to
be an officer of the Company on July 29, 1998.
<F16> Includes 6,010 shares owned directly and through the WLR
Foods, Inc. Employee Stock Purchase Plan and 5,000 shares which
Mr. Shafer has the right to purchase within 60 days of July 31,
1998 through the exercise of options.
<F17> Includes 141,075 shares owned directly and as general partner of
Wampler Land, 68,758 shares owned by his wife, 194,469 shares
held as trustee of the Charles W. Wampler, Sr. Family Trust, and
80,536 shares held as trustee of the Charles W. Wampler, Sr.
Charitable Annuity Trust. Mr. Wampler disclaims beneficial
4
<PAGE>
interest in the shares owned by his wife or held by the Trusts.
<F18> Includes 317,229 shares owned directly and as general partner of
Wampler Land, 204,260 shares owned by his wife, 28,517 shares
owned by May Meadows Farms, Inc., of which Mr. Wampler is an
officer and director, 194,469 shares held as trustee of the
Charles W. Wampler, Sr. Family Trust, and 80,536 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 2,172 shares held by Charles W.
Wampler, Jr. and William D. Wampler as general partners of
Wampler Land, and 275,005 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 62,273 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 207,875 shares which the group has
the right to purchase within 60 days of July 31, 1998 through the
exercise of options.
</FN>
PROPOSAL ONE: ELECTION OF DIRECTORS
The term of office for the current Class B directors expires
at the Annual Meeting. The Board of Directors has nominated such
directors, namely Stephen W. Custer, Calvin G. Germroth and James L.
Keeler for election, for a three-year term, by the shareholders at the
Annual Meeting.
In June, 1998, the Board appointed Katherine K. Clark to
the Board of Directors, and has nominated Ms. Clark for election to a
three-year term as an additional Class B director. In September 1998,
the Board appointed Keith E. Alessi to the Board, and has nominated
Mr. Alessi for election to a two-year term as an additional Class A
director, to serve until the 2000 annual meeting of the shareholders.
Messrs. Custer, Germroth and Keeler were elected by the shareholders
at the 1995 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, which the Company does not expect, the proxy may be voted
5
<PAGE>
for the election of a substitute nominee designated by the Board.
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 Jane T. Brookshire, 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
director nominees set forth below.
INFORMATION CONCERNING DIRECTORS AND NOMINEES
Biographical summaries for the five 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>
DIRECTOR NOMINEES
------------------
Class A Director
(to serve until the 2000 annual meeting of shareholders)
6
<PAGE>
<S> <C> <C> <C>
Keith E. Alessi 44 1998 Chairman, President and Chief
Executive Officer of
TeleSpectrum Worldwide, Inc.
since March, 1998. Previously,
Chairman, President and Chief
Executive Officer of Jackson
Hewitt, Inc. from 1996 to
1998, and, at various times,
President, Chief Operating
Officer and Chief Financial
Officer of Farm Fresh, Inc.
</TABLE>
<TABLE>
<CAPTION>
Class B Directors
(to serve until the 2001 annual meeting of shareholders)
<S> <C> <C> <C>
Katherine K. Clark 41 1998 Founder and Chief Executive
Officer of Landmark Systems
Corporation
Stephen W. Custer 56 1984 President of Custer
Associates, Inc.
(consulting firm)
Calvin G. Germroth 74 1988 Broiler producer
James L. Keeler 63 1988 Chief Executive Officer of the
President Company since February 1988.
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS CONTINUING IN OFFICE
------------------------------
Class C Directors
(to serve until the 1999 annual meeting of shareholders)
<S> <C> <C> <C>
George E. Bryan 76 1984 Poultry and livestock farmer
Charles L. Campbell 50 1988 Commissioner of Revenue for
Page County, Virginia; broiler
producer
William H. Groseclose, Jr. 67 1993 Chairman of Harrisonburg
Regional Board and Winchester
Regional Board of First Union
National Bank; previously
Chief Executive Officer of
Shenandoah Valley region of
Dominion Bank
William D. Wampler 70 1984 Poultry and livestock farmer
</TABLE>
<TABLE>
<CAPTION>
Class A Directors
(to serve until the 2000 annual meeting of shareholders)
<S> <C> <C> <C>
J. Craig Hott 45 1988 Vice President of Hott's
Farming, Inc. and Hott's
Ag-Services, Inc.
Herman D. Mason 77 1984 Retired; previously, Chief
Vice Chairman Executive Officer of the
of the board Company until 1988
7
<PAGE>
Charles W. Wampler, Jr. 82 1984 Poultry and livestock farmer
Chairman of the Board
</TABLE>
BOARD MEETINGS AND COMMITTEES
The Board met fifteen times during the fiscal year ended
June 27, 1998. Each director attended at least 75% of the aggregate
of the total number of Board meetings and meetings of all committees
of the Board on which he or she served. Nonmanagement directors of
the Company received $2,000 for attending a regularly scheduled Board
meeting, $500 for specially called Board meetings (excluding
telephonic meetings) and $500 for attending committee meetings not
held in conjunction with Board meetings. In addition, non-payroll
directors received an annual retainer of $13,000 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 during the last fiscal year. 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 Calvin G. Germroth, Herman D. Mason, and William
D. Wampler. 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 Nominating Committee met
twice during the fiscal year ended June 27, 1998. During the past two
years the Nominating Committee has focused on attracting new talent to
the Board, culminating in the appointment, in June, of Katherine K.
Clark, Chief Executive Officer of Landmark Systems Corporation, and in
September, of Keith E. Alessi, Chairman, President and Chief Executive
Officer of TeleSpectrum Worldwide, Inc.
The Company has a standing Executive Compensation Committee
which currently consists of Katherine K. Clark, Stephen W. Custer and
William H. Groseclose. The Executive Compensation Committee met three
times during the last fiscal year. The Executive Compensation
Committee determines the annual salary, bonus and other benefits of
8
<PAGE>
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.
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 27, 1998, 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 27, 1998. 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 $ 93,047
Timothy Campbell, his son 72,828
J. Craig Hott, Director
Hott's Farming, Inc. $ 258,259
James L. Keeler, President, Chief
Executive Officer and Director
Gregory Keeler, his son $ 176,745
Charles W. Wampler, Jr., Director
C. W. Wampler & Sons $ 199,217
Margaret Smith, his daughter 149,350
William D. Wampler, Director
May Meadows Farm, Inc. $ 86,144
C. W. Wampler & Sons 199,217
During the fiscal year ended June 27, 1998, the Company
purchased, either directly or through third-party suppliers, $312,650
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.
9
<PAGE>
Charles W. Wampler, Jr. and William D. Wampler are brothers, are
uncles of Stephen W. Custer and are brothers-in-law of George E.
Bryan.
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 27, 1998.
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 goals regarding executive compensation are 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
Executive Officers' salaries are determined by evaluating
the responsibilities of their positions and their performance, and by
reference to salaries paid in the competitive marketplace for
comparable executive ability and experience. 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. Individual salary
increases, which are considered annually, are based on evaluations of
10
<PAGE>
past and current performance, competitive market conditions and
company performance. Based on available figures, the Company
Executives' base salaries are generally more conservative than
salaries of executives in other companies within Virginia and the
industry.
With respect to the Chief Executive Officer, the Committee
believes that a significant portion of annual compensation should be
tied directly to Company performance, and that adjustments to base
salary should be consistent with Company wide salary adjustments.
This has held true in prior years when, because of challenges
presented by industry conditions, executive base salaries have
remained constant except for changes resulting from promotions.
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 operating 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 ten-year history of the Company's Incentive Bonus Program,
for years in which the Company does not have a strong return on
equity, a significant portion of management's annual compensation is
reduced.
Long-Term Incentive Plan
The Company's Long-Term Incentive Plan, a stock option plan
approved by the Company's shareholders in 1988 (the 1988 Plan),
rewards Company executives on a long-term basis and provides an
incentive for executive officers to maximize long-term shareholder
value. The Plan will be continued under the 1998 Long-Term Incentive
Plan (the 1998 Plan), the successor to the 1988 Plan, which is
proposed for shareholder approval. 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.
11
<PAGE>
At the inception of the 1988 Plan, 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. 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.
In fiscal year 1995, the Company began granting options with
a term of 10 years rather than 5 years as in the past, and began
granting ISOs to the extent permitted by the current Internal Revenue
Code, neither of which recommendations affect the Company's earnings.
While the Company deferred implementation of the SERP recommended by
the consultants, the Company did establish the 1995 Nonqualified
Deferred Compensation Plan. See "Deferred Compensation" below.
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 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
12
<PAGE>
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 pressures in recent years on the Company's financial
performance caused by record grain prices, oversupply of meat
products, particularly turkey, and other external forces affecting the
industry as a whole, Mr. Keeler's total annual compensation for the
current year remains consistent with the previous year. However,
because Mr. Keeler has not accepted his guaranteed bonus in previous
years, as described below under Executive Agreements , the Board
approved the addition of the $25,000 as salary, in lieu of a
guaranteed bonus. Otherwise, as described in the discussion of cash
bonus above, like all executives, Mr. Keeler's bonus is a function of
the Company's ROE. The number of stock options, which are tied solely
to Company performance, awarded to Mr. Keeler under the Long-Term
Incentive Plan remained at the same level as for the past three years.
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.
Prior to the 1997 annual meeting of the Company's
shareholders, the 1988 Plan qualified as performance based
compensation under a transitional rule. As such, options granted
pursuant to the 1988 Plan were not subject to the limitation because
such options were based on a stock price that was no less than the
13
<PAGE>
fair market value at the time of the grant. Consequently, the amount
of compensation an executive received pursuant to the 1988 Plan was
based solely on subsequent increases in the value of the stock. The
transitional rule expired with the 1997 annual meeting and, because of
industry conditions prevailing at the time, the Company elected to
focus on more immediate needs and to defer shareholder consideration
of a new Long-Term Incentive Plan. Consequently, any income received
by executives upon the exercise of options granted in 1998 under the
1988 Plan do not qualify as performance based compensation under
Section 162(m) and will count, along with cash salary and bonus,
towards the limitation.
Nevertheless, 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. Moreover,
options granted pursuant to the 1998 Long-Term Incentive Plan, if
approved by the shareholders, will qualify as performance-based
compensation, and will therefore not be subject to the limitation.
Accordingly, Section 162(m) is expected to have no impact on the
Company during the current fiscal year.
William H. Groseclose, Jr.
Katherine K. Clark
Stephen W. Custer
Executive Compensation Committee Members
SUMMARY COMPENSATION
The Summary Compensation Table below contains information
concerning annual and long-term compensation provided to the Company's
Chief Executive Officer and the five other most highly compensated
executive officers of the Company for all services rendered to the
Company and its subsidiaries for the fiscal years ending June 27,
1998, June 28, 1997 and June 29, 1996.
<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 97-98 $ 267,248 $ 0 - 60,000 $ 3,595
Chief Executive 96-97 266,402 0 - 60,000 3,368
Officer & 95-96 256,248 0 - 60,000 3,729
President
14
<PAGE>
Robert T. Ritter<F3> 97-98 190,000 0 - 20,000 3,800
Chief Financial 96-97 190,000 0 26,009 20,000 0
Officer 95-96 7,308 40,000 - 20,000 0
Secretary/Treasurer
Ruth J. Mack 97-98 185,000 0 54,149 11,250 71
Executive Vice 96-97 24,904 25,000 3,413 11,250 0
President Sales
and Marketing
Wampler Foods, Inc.
John J. Broaddus<F4> 97-98 164,628 0 - 10,000 3,087
President, Cassco 96-97 181,846 0 - 17,500 3,410
Ice & Cold 95-96 151,750 0 - 17,500 3,579
Storage, Inc.
Ronald E. Morris 97-98 139,039 0 - 10,000 1,500
Vice President
Turkey Operations
Wampler Foods, Inc.
Walter F. Shafer, III 97-98 138,654 0 - 10,000 2,715
Vice President
Chicken Operations
Wampler Foods, Inc.
<FN>
<F1> Includes relocation expenses paid in connection with the hiring of the named
executive.
<F2> Includes Company contributions made to the Company's Profit Sharing and
Salary Savings Plan of $3,595 for Mr. Keeler, $3,800 for Mr. Ritter, $71
for Ms. Mack, $3,087 for Mr. Broaddus, $1,500 for Mr. Morris and $2,715
for Mr. Shafer.
<F3> Mr. Ritter ceased to be an officer of the Company on July 29, 1998.
<F4> Mr. Broaddus ceased to be an officer of the Company as a result of the July
31, 1998 sale of the Company's Cassco Ice and Cold Storage, Inc. subsidiary.
</FN>
</TABLE>
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
- --------------------------------------------------------------------------------------------
% of Total
Options Exercise
Granted to or Base
Options Employee in Price Expiration Grant Date
Granted Fiscal Year Share Date Present Value<F1>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
James L. Keeler 60,000 37.8 $ 6.875 06/27/08 $ 235,800
Robert T. Ritter 20,000 12.6 6.875 06/27/08 78,600
Ruth J. Mack 11,250 7.1 6.875 06/27/08 44,213
John J. Broaddus 10,000 6.3 6.875 06/27/08 39,300
Ronald E. Morris 10,000 6.3 6.875 06/27/08 39,300
Walter F. Shafer,III 10,000 6.3 6.875 06/27/08 39,300
- --------------------
<FN>
<F1> The values shown reflect a standard application of the Black-Scholes Option
Pricing Model, assuming a risk-free rate of return of 5.67% and an annualized
volatility factor of 31%. Values shown do not take into account risk factors
15
<PAGE>
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>
<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 $ 0 161,250/180,000 $ 0/0
Robert T. Ritter 0 0 6,666/ 53,334 0/0
Ruth J. Mack 0 0 0/ 22,500 0/0
John J. Broaddus 0 0 35,833/ 42,917 0/0
Ronald E. Morris 0 0 0/ 13,000 0/0
Walter F. Shafer, III 0 0 1,666/ 18,334 0/0
- ---------------------
<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 27, 1998.
</FN>
</TABLE>
EXECUTIVE AGREEMENTS
The Company has entered into a three-year employment
agreement with the Chief Executive Officer, which expires at the end
of Fiscal Year 2001, containing terms similar to those of the previous
employment agreement which terminated on June 27, 1998. The agreement
governs Mr. Keeler's compensation, specifically his base salary,
bonus, perquisites and benefits. Although the previous agreement
provided for a guaranteed annual bonus of $25,000, Mr. Keeler has
declined to accept his guaranteed bonus for the last several years.
Consequently, the Executive Compensation Committee recommended that
the $25,000 be added to Mr. Keeler's base salary, and that the
guaranteed minimum bonus be eliminated. Otherwise, Mr. Keeler's base
salary remains unchanged during the current fiscal year and his bonus
factor, discussed under "Cash Bonus" on page 8 is 4.0, also the same
as last year. Mr. Keeler's deferred compensation allocation will be
calculated at 1.5% of the increase in the Company's book value over
each preceding year, as explained previously under "Deferred
Compensation." The Company has also agreed to provide group health
insurance coverage to Mr. Keeler and his wife for the remainder of
their lives, provided he does not retire before age 65. Mr. Keeler's
perquisites and benefits are consistent with those provided to the
16
<PAGE>
Company's senior management.
Under the terms of the 1998 Employment Agreement, Mr. Keeler
will serve as President and Chief Executive Officer of the Company for
the first two years of the contract. The third year is anticipated to
be a transition year, and the position and duties may be adjusted by
the Board of Directors. Under the Agreement, Mr. Keeler agrees to
work with the Board of Directors in identifying a successor, but also
agrees to give serious consideration to an extension of the Employment
Agreement if the Board requests additional time to identify a
successor.
The Company has entered into severance agreements with each
of the executive officers named in the Summary Compensation Table on
page 10 (the Severance Agreements). Pursuant to the Severance
Agreements, each of these individuals is entitled to certain payments
(described below) if the Company terminates his or her employment
during a specified period following a "Change in Control" of the
Company. The Severance Agreements for Mr. Ritter and Mr. Broaddus
terminated once they were no longer employed by 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 provide that if the Company
terminates an executive officer's 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
17
<PAGE>
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
payment in cash of the difference between the Termination Fair Market
Value (as defined in the Severance Agreements) and the exercise price,
of all unvested stock options, and for the continuation of employee
welfare benefits (such as health insurance) for three years after
termination if his or her 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.
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 26, 1993. The Peer
Group Index consists of Cagles, Inc., Golden Poultry Co., Inc.,
Pilgrims Pride Corporation and Sanderson Farms, Inc., companies within
the same industry and with similar equity market capitalization. In
previous years the Peer Group Index included Hudson Foods, Inc., which
has been eliminated from the Index as a result of its acquisition by
Tyson Foods, Inc.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
Among WLR Foods, Comparable Composite, and the S & P 500
18
<PAGE>
06/93 06/94 06/95 06/96 06/97 06/98
Composite 100 87 101 121 143 170
S & P 500 100 101 118 147 186 240
WLR Foods 100 132 99 92 72 50
PROPOSAL TWO:APPROVAL OF 1998 LONG-TERM INCENTIVE PLAN
Introduction
The Board of Directors adopted the WLR Foods, Inc. 1998
Long-Term Incentive Plan (the 1998 Plan) on August 24, 1998, subject
to approval by the shareholders at the Annual Meeting. The Board
recommends the approval of the 1998 Plan to replace the 1988 Plan,
which was adopted by the shareholders at the 1988 Annual Meeting.
As a result of Congress' adoption of Section 162(m) of the
Internal Revenue Code of 1986 (the Code), shareholder approval of the
1998 Plan is required in order for options to qualify as "performance-
based" compensation under that section and the regulations promulgated
thereunder. Moreover, under Section 422 of the Code, any plan under
which qualified incentive stock options are granted must be approved
by the Company's shareholders. Accordingly, the 1998 Plan is being
submitted to the shareholders for approval based on the Board's belief
that stock-based incentives are important factors in attracting,
retaining and rewarding officers and other selected employees, and in
aligning their interests with those of the shareholders.
According to several surveys of public companies, 70% or
more of public companies have stock option plans. Due to the recent
tax law changes summarized below, most of those companies have
restricted plans to comply with the tax law which became effective for
all companies whose tax year commences after December 31, 1996.
A summary of the principal features of the 1998 Plan is
provided below but is qualified in its entirety by reference to the
full text of the 1998 Plan which is attached to this Proxy Statement
as Appendix A.
The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote
at the Annual Meeting will be required to approve the 1998 Plan. The
Board believes that approval of the 1998 Plan is in the best interest
of the Company and its shareholders and recommends that the
shareholders vote for this proposal.
19
<PAGE>
Purposes
The primary purposes of the 1998 Plan are to promote the
interests of the Company and its shareholders by improving the
Company's ability to attract and retain highly talented individuals to
serve as officers and other key employees, and to provide a means to
encourage stock ownership and proprietary interests in the Company by
officers and key employees.
General
The 1998 Plan provides for the grant to certain full time
salaried key employees of the Company or its subsidiaries of Incentive
Stock Options, Nonqualified Stock Options (collectively, Stock
Options), Stock Appreciation Rights (SARs) and Restricted Grants, at
the discretion of the Executive Compensation Committee or such other
committee of independent directors as the Board may appoint to
administer the Plan (the Committee). The Committee may also grant
shares of the Company's common stock subject to such restrictions as
the Committee may deem advisable (Restricted Grants).
The aggregate number of shares of the Company's common stock
issued as Restricted Grants or deliverable upon the exercise of Stock
Options or SARs granted pursuant to the 1998 Plan is not to exceed
2,000,000 shares, and the maximum number of shares that may be granted
to any one individual during any five-year period pursuant to the 1998
Plan is 400,000 shares.
Administration
The 1998 Plan will be administered by a committee consisting
solely of two or more independent directors. Unless contrary to the
express provisions of the 1998 Plan or to resolutions adopted by the
Board, the administration, interpretation or application of the 1998
Plan by the Committee shall be final, conclusive and binding upon all
participants. Members of the Committee will receive no additional
compensation for their services in connection with the administration
of the 1998 Plan.
Eligibility
Under the 1998 Plan, the Committee may grant Stock Options,
SARs or Restricted Grants only to full time salaried key employees of
the Company or its subsidiaries who are selected by the Committee.
Currently, the Company expects that participation would be limited to
approximately 40 key employees. For incentive stock options granted
under the 1998 Plan, the aggregate fair market value, determined at
20
<PAGE>
the time of the grant, of the shares of common stock with respect to
which such options are exercisable for the first time by an optionee
during any calendar year (under all such plans of the Company) may not
exceed $100,000.
Awards
A Stock Option represents a right to purchase a specified
number of shares of common stock during a specified period as
determined by the Committee. The Stock Option may be in the form of
an Incentive Stock Option (ISO) which complies with Section 422 of the
Code, or in the form of Nonqualified Stock Options. Incentive Stock
Options do not result in taxable income to a recipient until the
underlying stock is sold following exercise of the option, provided
the stock is not disposed of within one year from the date of exercise
or two years from the date of the grant. The Company is not entitled
to a tax deduction for ISOs. Nonqualified Stock Options do not meet
the terms of Section 422 of the Code and result in taxable income to
the recipient at the time of exercise to the extent the fair market
value of the stock at the time of exercise exceeds the exercise price.
The Company is entitled to an income tax deduction upon the exercise
of a Nonqualified Stock Option equal to the amount of compensation
income recognized by the optionee.
The exercise price of options granted pursuant to the 1998
Plan will be determined by the Committee, but may not be less than
100% of the fair market value of the Company's stock on the date the
option is granted. No Incentive Stock Option may be granted under the
1998 Plan to any person who, at the time of the grant, owns (or is
deemed to own) stock possessing more than 10% of the total combined
voting power of the Company, unless the exercise price is at least
110% of the fair market value of the stock subject to the Incentive
Stock Option on the date of the grant, and the term of the option does
not exceed five years from the date of grant. The fair market value
will be determined by the average of the best bid and asked prices as
reported by the National Association of Securities Dealers Automated
Quotations National Market System on the last trading day prior to the
grant date.
Stock Appreciation Rights
Stock appreciation rights may be granted with regard to all
or part of any option granted under the 1998 Plan and entitle the
recipient to surrender, on exercise, the option to which the rights
relate, and to receive in exchange, cash or that number of shares of
common stock equal in value to the excess of the fair market value of
the option shares over the exercise price of the option shares.
21
<PAGE>
Participants recognize ordinary income at the time of surrender of a
SAR equal to the excess of the fair market value of the option shares
over the exercise price of the option shares. The Company is entitled
to an income tax deduction in the same amount.
Restricted Grants
Restricted Grants result in taxable income to a recipient
when any restrictions related to such stock lapse, equal in value to
the excess of the fair market value of the shares over the
consideration paid for the shares by the recipient, if any, unless the
recipient elects to recognize the excess at the earlier grant date.
The Company will be entitled to a tax deduction equal to the amount of
income recognized by the recipient.
Nontransferability of Options
Options granted under the 1998 Plan may not be transferred
or assigned other than by will or the laws of descent and
distribution, except that the Committee may provide for the
transferability of particular awards: (1) in limited instances to a
spouse or other immediate family members, (2) pursuant to a qualified
domestic relations order, or (3) as may otherwise be permitted by Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as
amended.
Duration, Amendment and Termination
The Board may suspend or terminate the 1998 Plan without
shareholder approval or ratification at any time or from time to time.
Unless sooner terminated, the 1998 Plan will terminate on October 31,
2008. The Board may also amend the 1998 Plan at any time or from time
to time. However, no amendment will be effective unless approved by
the shareholders of the Company within 12 months before or after its
adoption by the Board if the amendment would: (1) modify the
requirements as to eligibility for participation (to the extent such
modification requires shareholder approval in order for the 1998 Plan
to satisfy Section 422 of the Code), (2) increase the number of shares
reserved for issuance upon exercise of options, or (3) change any
other provision of the 1998 Plan in any way if such modification
requires shareholder approval in order to satisfy the requirements of
Section 422 of the Code.
The Board recommends a vote for Proposal Two.
22
<PAGE>
PROPOSAL THREE: APPOINTMENT OF INDEPENDENT AUDITORS
KPMG Peat Marwick LLP of Richmond, Virginia, were auditors
for the fiscal year ended June 27, 1998, and are being recommended to
the Company's shareholders for appointment as auditors for the fiscal
year ending July 3, 1999. 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 Three.
SHAREHOLDER PROPOSALS
Shareholders are reminded that proposals of shareholders
intended to be presented at the Company's 1999 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 28, 1999.
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 27, 1998.
By Order of the Board of Directors
/s/ Jane T. Brookshire
Jane T. Brookshire
Secretary
September 28, 1998
23
<PAGE>
APPENDIX A
WLR FOODS, INC.
1998 LONG-TERM INCENTIVE PLAN
1. Purpose. The Plan is intended to aid WLR Foods, Inc.
(WLR) and its Subsidiaries in attracting and retaining key executive
officers and management personnel with exceptional ability by enabling
such executive officers and management personnel to acquire a
proprietary interest in WLR and to have an additional incentive to
promote its success, as well as to encourage them to remain in the
employ of WLR or a Subsidiary. The Plan is intended to provide
Participants with stock based incentive compensation which is not
subject to the deduction limitation rules set forth under Section
162(m) of the Code, and should be construed to the extent possible as
providing for remuneration which is "performance based compensation"
within the meaning of Section 162(m) of the Code and the regulations
promulgated thereunder.
2. Definitions. The following terms shall have the
meanings set forth below unless the context requires a different
meaning.
(a) "Agreement" means a written agreement (including
any amendment or supplement thereto) between WLR and a Participant
specifying the terms and conditions of an Option, SAR or Restricted
Grant granted to such Participant.
(b) "Board" means the Board of Directors of WLR.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the Executive Compensation
Committee of the Board, or such other committee as may be appointed by
the Board, comprised solely of two or more members of the Board. A
majority of the members of the Committee shall constitute a quorum,
and all actions of the Committee shall be taken by a majority of those
members voting.
(e) "Common Stock" means the common stock of WLR.
(f) "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
(g) "Fair Market Value" means, on any given date, the
average of the best bid and asked prices as reported by NASDAQ, or any
successor national securities exchange, on such date if it is a
trading date, or if not, the first trading date prior to such date.
24
<PAGE>
If such method is inapplicable for any reason, the Fair Market Value
shall be determined by the Committee using any reasonable method in
good faith.
(h) "Grant Date" means the date as of which an Option,
SAR or Restricted Grant is granted under the Plan.
(i) "Incentive Stock Option" means an Option that
qualifies as an Incentive Stock Option under Section 422 of the Code.
(j) "Nonqualified Stock Option" means an Option which
is not an Incentive Stock Option.
(k) "Option" means the right of the holder to purchase
from WLR a stated number of shares of Common Stock at the price set
forth in an Agreement, which right shall be designated as either an
Incentive Stock Option or Nonqualified Stock Option.
(l) "Participant" means an employee of WLR or a
Subsidiary, including an employee who is a member of the Board, who
satisfies the requirements of Paragraph 3 and is selected by the
Committee to receive an Option.
(m) "Plan" means the WLR Foods, Inc. 1998 Long-Term
Incentive Plan, as may be amended and restated from time to time.
(n) "Restricted Grant" means a grant of Common Stock
subject to restrictions established by the Committee.
(o) "SAR" means a stock appreciation right (which may
be granted only in conjunction with an Option) that entitles the
holder to receive, with respect to each share of Common Stock
encompassed by the exercise of such SAR, the increase in the Fair
Market Value of such shares to be payable, in cash or Common Stock, as
the Committee may prescribe, subject to such limitations in amounts as
the Committee may designate in the Agreement.
(p) "Subsidiary" means any corporation at least 50% of
the total combined voting power of which is owned by WLR, either
directly or through one or more of its Subsidiaries, within the
meaning of Section 424(f) of the Code and rules and regulations
thereunder.
(q) "WLR" means WLR Foods, Inc., a Virginia
corporation.
3. Eligibility. Any employee of WLR or one of its
Subsidiaries is eligible to be granted one or more Options, SARs, or
25
<PAGE>
Restricted Grants, at any time and from time to time, if employed at
the time of such grant. Directors of WLR who are employees and are
not members of the Committee are eligible for awards under the Plan.
4. Shares Available. The aggregate number of shares which
may be issued to Participants under the Plan shall be:
(a) 2,000,000 shares; plus
(b) Any shares that are represented by awards or
portions of awards under the Plan that are forfeited, expired,
cancelled or settled without the issuance of shares. Upon a stock-
for-stock exercise of Options, only the net number of shares received
will be considered utilized.
The aggregate number of shares with respect to which
Options, SARs and Restricted Grants may be awarded to any individual
Participant under the Plan shall not exceed 400,000 shares for any
five consecutive fiscal years during which the Plan is in effect.
5. Administration. The Plan shall be administered by the
Committee, which shall have all the powers necessary for such
administration, including without limitation, the power:
(a) Solely to determine, consistent with the terms and
conditions of the Plan, annually or otherwise from time to time (i)
which employees of WLR and its Subsidiaries shall be Participants to
whom Options, SARs and Restricted Grants shall be granted; (ii) the
number of shares which may be purchased under each Option or with
respect to which SARs may be granted; (iii) the per share Option
exercise price; (iv) the duration of Options and SARs; (v) the time or
times at which each Option or SAR may be exercised; (vi) whether
Options shall be Incentive Stock Options or Nonqualified Stock
Options; and (vii) the number of shares granted and terms of
Restricted Grants.
(b) To interpret the Plan, to prescribe, amend and
rescind rules, regulations and guidelines relating to it, and to make
all other determinations necessary or advisable for its
administration, all of which decisions made or actions taken shall be
binding and conclusive; and
(c) To keep, or cause to be kept, appropriate records
of all determinations made and actions taken pursuant to the Plan.
The express grant in this Plan of any specific power to the
Committee shall not be construed as limiting any power or authority of
the Committee. No member of the Committee shall be liable for any act
done in good faith with respect to this Plan or any Agreement, Option,
26
<PAGE>
SAR or Restricted Grant.
6. Terms and Conditions of Options. Each Option granted
by the Committee shall be evidenced by an Agreement in such form as
the Committee from time to time shall approve, subject to the
following terms and conditions:
(a) Each Agreement shall state whether the Option
granted is an Incentive Stock Option or Nonqualified Stock Option and
shall state the number of shares to which the Option pertains.
(b) The Option exercise price shall in no case be less
than 100% of the Fair Market Value of Common Stock on the Grant Date.
(c) Unless otherwise provided by the Committee, the
term of each Option shall be ten (10) years from the Grant Date,
except for the restrictions set forth in (d) below.
(d) In the case of an Incentive Stock Option granted
to an individual who owns more than 10% of the combined voting power
of all classes of stock of WLR within the meaning of Section 422(b)(6)
of the Code and the rules and regulations thereunder, the Option
exercise price shall be at least 110% of the Fair Market Value on the
Grant Date, and the term of such Option shall be five (5) years.
(e) Subject to provisions relative to their
termination and limitations on their exercise, Options may be
exercised as to all or, from time to time, any part of the total
number of shares to which the right to purchase has accrued upon
written notice of the exercise to WLR in such form as the Committee
may prescribe; provided, however, that no Option may be exercised at
any one time as to less than 25 shares of Common Stock unless any
smaller number of shares represents the balance then currently
exercisable, in which case such balance may be exercised without
regard to any minimum share limitation.
(f) No Incentive Stock Option may be granted more than
10 years from the Effective Date of the Plan.
(g) The aggregate Fair Market Value (determined at the
time the Incentive Stock Options are granted) of the Common Stock with
respect to which Incentive Stock Options granted under the Plan are
exercisable for the first time by the Participant during any calendar
year may not exceed $100,000 or such lesser or greater amount as shall
be specified in Section 422 of the Code and the rules and regulations
thereunder.
(h) Payment of the purchase price may be made in cash
or, with the consent of the Committee, by delivery (either actually or
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by attestation) of shares of Common Stock owned by the Participant
valued at Fair Market Value on the date of exercise of the Option, or,
with the consent of the Committee, a combination thereof. The
exercise of Options may be facilitated through the efforts of brokers
utilizing cashless exercise loan or sales procedures, all at the
discretion of the Committee. In any event, a portion of the shares of
Common Stock otherwise issuable to the Participant upon exercise of
the Option shall be withheld by the Company to satisfy any required
tax withholding consequences of the exercise of the Option.
7. Terms and Conditions of SARs. Each SAR granted by the
Committee shall be evidenced by an Agreement in such form as the
Committee from time to time shall approve, subject to the following
terms and conditions:
(a) Each Agreement shall state the number of shares
with respect to which SARs are granted in connection with any Option
(whether granted before or concurrently with the SAR).
(b) A SAR may be exercised in whole or in part upon
the delivery to WLR of written notice of the exercise in such form as
the Committee may prescribe.
(c) A SAR shall be exercisable at such time or times
and to the extent, and only to the extent, that the Option to which it
relates shall be exercisable, provided that no SAR, whether granted
concurrently with or subsequent to the grant of the Option to which it
relates, shall be exercisable during the first six months following
its grant.
(d) If the Committee permits and the Participant so
elects, WLR shall settle its obligation arising out of the exercise of
a SAR by the payment to the Participant of cash equal to the aggregate
Fair Market Value of the number of shares which it would otherwise be
obligated to deliver upon such exercise, subject to the timely
satisfaction of the conditions of clauses (i) and (ii) below and any
further conditions specified in the grant of the SAR:
(i) WLR shall have at such time been subject to
the reporting requirements of Section 13(a) of the Securities Exchange
Act of 1934, as from time to time in effect, or in the event of the
repeal of such section, such reporting requirements as may from time
to time be prescribed by any similar federal law, for a period of at
least one year prior to such election; shall have filed all reports
and statements required to be filed pursuant to that section or other
provision during the year ending upon the date of such election; and
shall at such time have the practice of releasing for publication on a
regular basis quarterly and annual statements of earnings, which data
shall appear on a wire service, in a financial news service, in a
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newspaper of general circulation, or are otherwise made publicly
available; and
(ii) If the Participant is a person subject to the
requirements of Section 16(b) of the Securities Exchange Act of 1934,
the Participant's notice of exercise of a SAR, and his election to
have WLR's obligation thereunder settled in cash, shall be received by
WLR in writing during the period beginning on the third business day
next following the date of release of the quarterly or annual
financial data specified in clause (i) and ending on the twelfth
business day following such date of release. This condition, however,
shall not apply to any exercise by the Participant of a SAR for cash
where the date of exercise is automatic or fixed in advance under the
Plan and is outside the control of the Participant.
(e) A SAR, subject to any additional limitations
included in the grant, shall entitle the Participant to surrender to
WLR, unexercised, the Option to which it relates, or any portion
thereof, and to receive from WLR in exchange therefor that number of
shares of Common Stock, if available, having an aggregate Fair Market
Value equal (computed to the highest whole number of shares) to the
excess of the Fair Market Value of one share over the exercise price
per share specified in such Option multiplied by the number of shares
called for by the Option, or portion thereof, which is so surrendered.
8. Terms and Conditions of Restricted Grants. Each
Restricted Grant granted by the Committee shall be evidenced by an
Agreement in such form as the Committee from time to time shall
approve. The Committee shall determine the individuals to whom Common
Stock shall be granted, the time or times at which Common Stock shall
be granted, the number of shares of Common Stock to be granted, what
consideration, if any, shall be paid by the recipient for such granted
Common Stock, what restrictions, if any, shall be applicable to such
Common Stock, and all such other terms and conditions related to such
Common Stock granted as the Committee deems appropriate. No Common
Stock received as a Restricted Grant shall be transferred by the
Participant during the first six months following the Restricted Grant
award date.
9. Non-Transferability. No Option, SAR or Restricted
Grant granted under this Plan shall be transferrable or assignable
other than by will or the laws of descent and distribution, except
that the Committee may provide for the transferability of particular
grants:
(a) By gift or other transfer to either (1) a spouse
or other immediate family member, or (2) any trust or estate in which
the original Participant or such person's spouse or other immediate
family member has a substantial interest;
(b) Pursuant to a qualified domestic relations order; or
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(c) As may otherwise be permitted by Rule 16b-3
promulgated under the Securities Exchange Act of 1934.
10. Adjustment Upon Change in Common Stock. If WLR effects
one or more stock dividends, stock splits, consolidations of shares,
or other similar changes in capitalization, the maximum number of
shares as to which Options, SARs and Restricted Grants may be granted
under the Plan to each Participant, and to all Participants, shall be
proportionately adjusted, and the Committee shall make equitable
adjustments in the number and Option price of the shares which are or
may become subject to Options then outstanding or thereafter granted.
11. Corporate Reorganization. If there shall be a
corporate merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation within the provisions of
Section 424 of the Code or corresponding subsequent provisions, and if
such transaction shall affect the Common Stock, there shall be
substituted for the Options, SARs and Restricted Grants under this
Plan, new Options, SARs and Restricted Grants or the assumption
thereof, with necessary changes in the number, kind or price required
by such transaction, so that the Participant shall receive under such
new Options, SARs and Restricted Grants or upon such assumption the
same benefits as he would have received had such transaction not
occurred.
12. Compliance with Law and Approval of Regulatory
Authorities. No Option or SAR shall be exercisable, no Common Stock
shall be delivered, and no payment shall be made under this Plan,
except in compliance with all applicable federal and state laws and
regulations. WLR shall have the right to rely on the advice of
counsel as to such compliance. Any certificates issued to evidence
Common Stock for which an Option, SAR or Restricted Grant is exercised
may bear such legends and statements as the Committee may deem
advisable to assure compliance with federal and state laws and
regulations. No Option or SAR shall be exercisable, no Common Stock
shall be issued, no certificate for shares shall be delivered, and no
payment shall be made under this Plan until WLR has obtained such
consent or approval as the Committee may deem advisable from
regulatory bodies having jurisdiction over such matters.
13. General Provisions. Neither the adoption of this Plan,
nor any documents describing or referring to this Plan (or any part
thereof) shall confer upon any employee any right to continue in the
employ of WLR or a Subsidiary, or in any way affect any right and
power of WLR or a Subsidiary to terminate the employment of any
employee at any time with or without cause. The establishment of the
Plan does not confer upon any employee any legal or equitable right
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against WLR, any Subsidiary, or the Committee, except as expressly
provided in the Plan.
14. Amendment. The Board may amend or terminate this Plan
from time to time; provided, however, that no amendment may become
effective until shareholder approval is obtained if (i) the amendment
increases the aggregate number of shares that may be issued pursuant
to the exercise of Options or SARs, (ii) the amendment materially
modifies the requirements as to the eligibility for participation in
the Plan; or (iii) the amendment materially increases the benefits
accruing to Participants.
15. Effective Date and Duration of Plan. The effective
date of this Plan is August 24, 1998, subject to stockholder approval.
This Plan and any benefits granted hereunder shall be null and void if
stockholder approval is not obtained at the next annual meeting of the
stockholders. Unless previously terminated by the Board, the Plan
shall expire at the close of business on the tenth anniversary of such
stockholder approval.
If the Plan is not approved, the 1988 Long-Term Incentive
Plan shall remain in effect until all shares authorized thereunder
have been issued. If the Plan is approved no additional grants would
be made under the 1988 Long-Term Incentive Plan.
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