-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, mFOakr10Nz55OpnuUmrGaaz38H6RqUZ8V3/YzawefZTWsja/b1E2kluZ+w6OkChI K7MCilrKCEIVvDhZ5OIEag== 0000760775-94-000025.txt : 19941007 0000760775-94-000025.hdr.sgml : 19941007 ACCESSION NUMBER: 0000760775-94-000025 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19940702 FILED AS OF DATE: 19940930 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WLR FOODS INC CENTRAL INDEX KEY: 0000760775 STANDARD INDUSTRIAL CLASSIFICATION: 2015 IRS NUMBER: 541295923 STATE OF INCORPORATION: VA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17060 FILM NUMBER: 94551116 BUSINESS ADDRESS: STREET 1: P O BOX 7000 CITY: BROADWAY STATE: VA ZIP: 22815 BUSINESS PHONE: 7038674001 MAIL ADDRESS: STREET 1: 800 CO OP DRIVE CITY: TIMBERVILLE STATE: VA ZIP: 22853 FORMER COMPANY: FORMER CONFORMED NAME: WAMPLER LONGACRE ROCKINGHAM INC DATE OF NAME CHANGE: 19881114 FORMER COMPANY: FORMER CONFORMED NAME: WAMPLER LONGACRE INC DATE OF NAME CHANGE: 19880209 10-K 1 10-K TEXT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal year ended July 2, 1994 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITITES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number 0-17060 WLR FOODS, INC. (Exact name of registrant as specified in its charter) Virginia 54-1295923 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 7000, Broadway, Virginia 22815 (Address of principal executive offices) Registrant's telephone number, including area code 703-896-7000 Securities registered pursuant Name of each exchange on which required to Section 12(b) of the Act: N/A N/A Common Stock - no par value (Title of class) Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes ___ No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X The aggregate value of the voting stock held by non-affiliates of the registrant as of September 30, 1994 was approximately 1,596,528. The number of shares outstanding of registrant's common stock, no par value, as of such date was 12,196,563 shares. Documents Incorporated by Reference Annual Report to Shareholders for fiscal year ended July 2, 1994 Part II Proxy Statement for Annual Meeting of Shareholders to to held October 29, 1994 Part III WLR FOODS, INC. FORM 10-K CROSS REFERENCE SHEET Item Number and Caption Incorporated by Reference To: 1. Business Not Applicable 2. Properties Not Applicable 3. Legal Proceedings Not Applicable 4. Submission of Matters to a Vote Not Applicable of Security Holders 5. Market for Registrant's Common Annual Report (Exhibit 13.3) Stock and Related Stockholder Matters and this 10-K at 10 6. Selected Financial Data Annual Report (Exhibits 13.1 & 13.3) 7. Management's Discussion and Annual Report Analysis of Financial Condition (Exhibit 13.2) and Results of Operations 8. Financial Statements and Annual Report (Exhibit 13.3) Supplementary Data and this 10-K at 19-22 9. Changes in and Disagreements with Not Applicable Accountants on Accounting and Financial Disclosure 10. Directors of the Registrant Proxy Statement (Exhibit 22) 11. Executive Compensation Proxy Statement (Exhibit 22) 12. Security Ownership of Certain Proxy Statement Beneficial Owners and Management (Exhibit 22) 13. Certain Relationships and Related Proxy Statement Transactions (Exhibit 22) 14. Exhibits, Financial Statement Not Applicable Schedules, and Reports on Form 8-K PART I Item 1. BUSINESS. General WLR Foods, Inc. (WLR Foods or the Company) is a fully-integrated poultry processing company involved in the production, further processing and marketing of turkey and chicken products, and the distribution of poultry and meat products. In addition, WLR Foods manufactures ice for retail distribution and is a provider of public refrigerated warehousing services. WLR Foods markets more than 250 branded, as well as private label, commodity and value-added poultry and related products to selected retail, food service and institutional markets, primarily in the mid-Atlantic and northeastern regions of the United States and, to a lesser extent, the upper Midwest and California. WLR Foods exports to more than 40 countries, with particular customer strength in the Far East, the Caribbean and United States military installations. WLR Foods is the combination of three poultry companies, Wampler Foods, Inc., Horace W. Longacre, Inc. and Rockingham Poultry Marketing Cooperative Incorporated, all of which had their beginnings prior to 1945. Wampler Foods, Inc. and Horace W. Longacre, Inc. were combined in 1985, and Rockingham Poultry Marketing Cooperative Incorporated was acquired in 1988. Prior to their consolidation on December 31, 1993, the Company operated its poultry business through two major subsidiaries, Wampler- Longacre Turkey, Inc. (Wampler-Longacre Turkey) and Wampler- Longacre Chicken, Inc. (Wampler-Longacre Chicken). In April 1990, the Company acquired Cassco Ice & Cold Storage, Inc. (Cassco), a public refrigerated warehouse and ice manufacturing and distribution business. WLR Foods also owns 65% of May Supply Company, Inc. (May Supply), a wholesale distributor of plumbing supplies and equipment. In May 1993, WLR Foods acquired assets of two ice manufacturing and distribution companies located in the greater Washington, D.C. area and in Richmond, Virginia. These two operations have been integrated into Cassco. On November 27, 1992, WLR Foods acquired Round Hill Foods, Inc. and affiliated companies (Round Hill), located in New Oxford, Pennsylvania. Round Hill is engaged in turkey production, processing and marketing. On January 1, 1994, Wampler-Longacre Turkey and Wampler-Longacre Chicken were merged into a single poultry company under the name Wampler-Longacre, Inc. (Wampler-Longacre). As a part of this consolidation, Round Hill was also merged into Wampler-Longacre. Poultry Production WLR Foods controls the breeding, hatching, grow-out and processing of its turkeys and chickens. For fiscal 1994, WLR Foods produced approximately 386 million pounds of dressed turkey and 517 million pounds of dressed chicken. WLR Foods purchases breeder stock turkey eggs which it hatches and places with growers who supply labor and housing to produce breeder flocks. These breeder flocks produce eggs that are taken to the company-owned turkey hatchery for incubation and hatching into poults. In its chicken operations, WLR Foods purchases breeder flock chicks and places them with growers who supply labor and housing to raise the birds. The birds are then moved to breeder farms where they begin providing eggs. When laid, eggs are transported to company-owned hatcheries. Once hatched, day-old poults and chicks are inspected and vaccinated against common poultry diseases. In total, WLR Foods contracts with 146 breeder growers who grow most of WLR Foods' turkey, and all of WLR Foods' chicken, breeder flocks. After hatching and vaccination, poults and chicks are transported to one of WLR Foods' approximately 630 contract growers located in Virginia, West Virginia, Pennsylvania and Maryland who supply labor and housing to raise the turkeys and chickens to maturity. WLR Foods supplies feed primarily from company-owned feed mills and provides grower support through WLR Foods' technicians and veterinarians. Grow-out and breeder farms provide WLR Foods with more than 38 million square feet of growing facilities. These farms typically are grower-owned, operate under contract with WLR Foods, and provide facilities, utilities and labor. Contract growers are compensated on a cost-based formula and several incentive-based formulas. Approximately 80% of WLR Foods' turkeys and 100% of its chickens are raised by contract growers, with the balance grown by independent growers and company-owned farms. WLR Foods strives to maintain good contract grower relationships and believes the availability of contract growers is sufficient for anticipated needs. An important factor in the grow-out of poultry is the rate at which poultry converts feed into body weight. The Company purchases its primary feed ingredients on the open market. These ingredients consist primarily of corn and soybean meal and represent approximately 66% of WLR Foods' total cost to grow turkeys and chickens and approximately 32% of its cost of sales for fiscal 1994. Because the quality and composition of feed is critical to the feed conversion rate, WLR Foods formulates and produces a majority of its own feed at one of its three feed mills. WLR Foods has annual feed manufacturing capacity in excess of 1 million tons and anticipates no difficulty in meeting the Company's feed requirements in the future. Once the turkeys and chickens reach processing weight, they are transported in WLR Foods' trucks to one of its six processing plants. These plants utilize modern, highly automated equipment to process and package the turkeys and chickens for sale or preparation for further processing. WLR Foods further processes bulk poultry by adding value beyond deponing and skinning, such as slicing, grinding, marinating, spicing and cooking to produce delicatessen products, frankfurters, meat salads, ground turkey and chicken and food service products. Distribution, Public Refrigerated Warehousing, Ice and Other WLR Foods' distribution business, with its warehousing and transportation equipment, includes fresh poultry, beef, and other meat products purchased from third parties for resale and is conducted within a radius of approximately 75 miles of WLR Foods' further processing facility in Franconia, Pennsylvania. In fiscal 1994, Cassco sold 21.8 million eight-pound equivalent bags of retail ice, making it one of the largest ice manufacturers in the mid-Atlantic region. In addition, Cassco operates public refrigerated warehouses at four locations. WLR Foods' protein conversion plants convert the nonedible by-products of its poultry processing plants into feed ingredients, with the balance sold to pet food manufacturers. The following table sets out sales revenues from WLR Foods' products for the last three fiscal years. Fiscal 1994 Fiscal 1993 Fiscal 1992 (Dollars in Millions) Chicken, fresh and frozen $287.5 $238.2 $202.8 Turkey, fresh and frozen 171.4 123.7 90.9 Further processed 152.1 147.7 123.4 Distribution 82.4 80.0 73.7 Other 33.9 27.1 23.7 Total Net Sales $727.3 $616.7 $514.5 Competition Poultry production requires continuous growing and processing, with limited storage, making the poultry industry highly competitive. WLR Foods markets its products in competition with larger and smaller poultry companies on the basis of price, quality and service, with WLR Foods' greatest competition coming from four or five of the country's larger poultry producers and processors. The pricing of poultry products is so competitive that any company with a cost advantage is in a favorable competitive position. Seasonal increases in production and customer buying patterns contribute to fluctuations in prices which are controlled more by supply and demand than by cost of production. WLR Foods primarily markets its products in the highly competitive northeastern section of the United States. In June 1994 WLR Foods was ranked as the ninth largest in poultry processing/further processing according to Meat & Poultry Magazine. WLR Foods was the fourth largest American turkey producer according to Turkey World magazine's December 1993 issue. WLR Foods was cited as the 14th largest chicken producer in the December 1993 issue of Broiler Industry magazine. Seasonality In general, WLR Foods consistently produces and sells its products throughout the year. Highest demand for poultry is in May, June, July, November and December. The early summer months have strong demand for chicken and further processed products and November and December are high demand months for turkey products. The highest demand for ice is during the period from mid-May to mid-September. Trademarks and Patents Wampler-Longacre markets its products under the trademarks WAMPLER LONGACRE and design, LONGACRE FAMILY and design, TRIM FREE and chicken in heart design, MOUNTAIN MAID, SALADFEST, SALT WATCHERS, TENDERLINGS and TURKEY WITH A TWIST, all of which are federally registered trademarks. Wampler-Longacre also markets under the trademark CHEF'S QUALITY, which has a pending federal application. Wampler-Longacre markets its export and foreign military sales under the ROCKINGHAM trademark. Products are also sold under the GENUINE SHENVALLEY VIRGINIA POULTRY mark. Cassco distributes its products under the federally registered trademark CASSCO. Wampler-Longacre holds a patent for pasteurized salads. Government Contracts WLR Foods' government contracts are a small segment of its total sales, consisting of bids on particular products for delivery at specified locations. Contracts are generally bid, and the product is delivered, within a one- to two-month period. These contracts include both chicken and turkey products and can involve further processed products. WLR Foods had approximately $0.9 million of governmental contracts outstanding as of July 2, 1994, compared to approximately $1.8 million outstanding as of July 3, 1993. Foreign Sales WLR Foods' foreign sales constituted approximately 7% of its total annual sales in fiscal 1994, compared to 6% for fiscal year 1993 and 5% for fiscal year 1992. Wampler-Longacre has a full- time staffed foreign sales office which coordinates foreign sales efforts on behalf of WLR Foods. Foreign sales originate from that office and use independent brokers as needed. Sales are made in over 40 countries. Transportation Transportation logistics, including the availability of transportation equipment and the efficiency of transportation systems, are key elements in the raising of poultry, transporting feed to the contract growers and outside purchasers, transporting poultry to the processing plants, and transporting products to customers. WLR Foods has contracts with two railroad companies for the delivery of feed ingredients to WLR Foods' feedmills. WLR Foods' primary marketing area is the northeastern, central and eastern United States, and delivery of the Company's products are generally made by truck. WLR Foods maintains a fleet of refrigerated trucks and uses them, along with refrigerated common carrier and customer-owned vehicles, to deliver its product. Export products are loaded in refrigerated containers and shipped overseas. Raw Materials WLR Foods' largest cost is for basic feed ingredients, namely corn and soybean meal. Feed costs represented approximately 32% of the Company's total cost of sales in fiscal year ended July 2, 1994. Feed grains are commodities subject to volatile price changes caused by weather, size of harvest, transportation and storage cost and the agricultural policies of the United States and foreign governments. Although WLR Foods can, and sometimes does, purchase grain in the forward markets, it cannot completely eliminate the potential adverse effect of grain price increases. Environmental and Other Regulatory Compliance WLR Foods' facilities and operations are subject to the regulatory jurisdiction of various federal agencies, including the federal Food and Drug Administration, Department of Agriculture, Environmental Protection Agency, Occupational Safety and Health Administration, and corresponding state agencies in Virginia, West Virginia and Pennsylvania. Wampler-Longacre currently holds two environmental permits for its Hinton turkey processing facility: an air permit which regulates certain combustion equipment to comply with the Clean Air Act and a water permit which regulates the treatment of processing wastewater to comply with the Clean Water Act. Wampler-Longacre has one environmental permit for its Harrisonburg turkey processing facility which requires it to pre- treat its processing wastewater to meet certain effluent standards before discharging it into the regional sewer. Wampler-Longacre currently has six environmental permits for its Franconia turkey processing facility: two water permits, issued by the Pennsylvania Department of Environmental Resources, for the treatment of processing wastewater to comply with the Clean Water Act, three air permits to regulate the operation of certain combustion and incineration equipment, and one municipal waste permit for the disposal of incinerator ash. Wampler-Longacre's turkey processing facility in New Oxford, Pennsylvania, holds one environmental permit (air permit) which regulates combustion equipment. Wampler-Longacre also holds one environmental permit (air permit) for its Harrisonburg feedmill issued primarily for the control and abatement of dust. Wampler-Longacre holds two permits for its Timberville chicken processing and rendering facility: a water permit to regulate the discharge of processing wastewater and an air permit to regulate the operation of its new protein conversion facility, as well as certain combustion equipment. Wampler-Longacre has one permit for its Alma/Stanley chicken processing facility: a water permit to regulate the discharge of processing wastewater to meet the standards of the Clean Water Act. Additionally, there are three permits for Wampler-Longacre's chicken processing and rendering facility in Moorefield, West Virginia: a water permit to regulate the discharge of processing wastewater, an air permit to regulate the operation of the company's new protein conversion facility, and a sludge management permit regulating the land application in West Virginia of certain wastewater biosolids generated at the Moorefield wastewater treatment works. Finally, Wampler-Longacre holds one environmental permit (air permit) for its Broadway and Moorefield feedmills which were issued primarily for the control and abatement of dust. WLR Foods, on behalf of its Virginia chicken and turkey processing facilities, filed for issuance of a Virginia Pollution Abatement (VPA) permit regulating the land application in Virginia of certain wastewater biosolids generated by the facilities' Virginia wastewater treatment systems. The VPA permit will replace Wampler-Longacre's No-Discharge certificate which formerly regulated the land application of the facilities' wastewater sludges in Virginia and will supersede an Interim Sludge Management Plan under which Wampler-Longacre has managed certain wastewater biosolids generated from its Virginia facilities. Management has taken steps to ensure that those facilities regulated by new stormwater regulations have made the necessary group, individual, or general permit applications in accordance with the federal deadlines. Management believes that all facilities and operations are currently in compliance with environmental and regulatory standards. Compliance has not had a materially adverse effect upon WLR Foods' earnings or competitive position in the past, and it is not anticipated to have a material adverse effect in the future. Employees WLR Foods employed approximately 6,800 persons as of July 2, 1994, none of whom were covered by a collective bargaining agreement. Item 2. PROPERTIES. WLR Foods' six poultry processing facilities and one further processing plant are located in Virginia, West Virginia and Pennsylvania and have a total slaughter capacity of approximately 460,000 turkeys per week and 3.1 million chickens per week. WLR Foods owns and operates three feed mills with a production capacity in excess of one million tons of finished feed per year; a turkey hatchery with a production capacity of approximately 335,000 poults per week and two chicken hatcheries with a production capacity of approximately 3.2 million chicks per week; freezer and cold storage for finished products with approximately 5.2 million cubic feet of capacity; and two protein conversion plants with a total production capacity of 4,500 tons of raw product weekly. The diversity, number and geographic proximity of its processing and support facilities provide WLR Foods with operating flexibility and enable it to alter the size and mix of poultry processed among the various facilities, as market conditions change. Cassco operates public refrigerated facilities at four locations with approximately 7.0 million cubic feet. These facilities are located close to major food processors in the mid- Atlantic region, as well as WLR Foods' own processing plants. Cassco also operates six ice manufacturing facilities in Virginia and West Virginia with a capacity of approximately 1,000 tons per day. From fiscal 1988 through the end of fiscal 1994, WLR Foods has spent over $152 million (excluding capital leases) for replacement and productivity improvements, acquisitions and expansion of facilities and protein conversion plant construction. WLR Foods owns virtually all of its manufacturing and production equipment which is in good repair and is updated periodically. Replacement parts and service for the equipment are readily available, which allows for timely processing of the Company's products. Item 3. LEGAL PROCEEDINGS. On February 6, 1994, WLR Foods filed suit in the United States District Court for the Western District of Virginia against Tyson Foods, Inc. (Tyson), seeking, among other things, (1) a declaratory judgment as to the validity of the Company's Shareholder Protection Rights Plan, and (2) a declaratory judgment as to the constitutionality of Article 14, Virginia Code Sections 13.1-725 et seq. (Virginia Affiliated Transactions Statute), and Article 14.1, Virginia Code Sections 13.1-728 et seq. (Virginia Control Share Acquisitions Statute), of the Virginia Stock Corporation Act under the Virginia and United States Constitutions. In response, on February 25, 1994, Tyson, joined later by its wholly-owned subsidiary WLR Acquisition Corp., filed counterclaims against the Company and all its directors, except Peter A.W. Green, seeking, among other things, to invalidate the Company's Shareholder Protection Rights Plan and certain severance agreements, and a declaratory judgment that the Virginia Affiliated Transactions Statute, the Virginia Control Share Acquisitions Statute and other Virginia statutes, facially and as applied, are unconstitutional under the United States Constitution. Tyson's counterclaims also sought a declaratory judgment that four of the Company's directors who resigned as employees of the Company in February 1994 were not disinterested shareholders, and therefore were ineligible to vote their shares at a Special Meeting of the Shareholders held on May 21, 1994, and that the Company's directors breached their fiduciary duties in taking certain actions described in Tyson's counterclaims. Tyson filed motions for preliminary relief as to the directors' eligibility to vote and as to the constitutionality of the several Virginia statutes, which motions for relief were denied by the District Court on June 22, 1994 and August 7, 1994, respectively. Trial for any remaining issues was scheduled for September 12-15, 1994; however, those trial dates have been released. The District Court will issue a final judgment in the litigation based on the written record, as supplemented. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On March 9, 1994, Tyson Foods, Inc., through its wholly- owned subsidiary, WLR Acquisition Corp., commenced a tender offer to purchase all the outstanding shares of WLR Foods for $30 per share. The Board of Directors of WLR Foods determined that the offer was inadequate and recommended that the Company's shareholders not tender their shares to Tyson Foods, Inc. This position is detailed in the Company's Schedule 14d-9 filed with the Securities and Exchange Commission on March 14, 1994, as amended. To further their takeover efforts, on April 14, 1994 Tyson Foods, Inc. requested a special meeting of WLR Foods' shareholders under the Virginia Control Share Acquisitions Statute. A special meeting of the Company's shareholders was held on May 21, 1994 for the sole purpose of considering a proposal of Tyson to grant it and its associates voting rights for shares of the Company's stock they have acquired or may acquire in connection with their offer to buy the Company. On March 9, 1994, Tyson commenced an unsolicited public tender offer to purchase all outstanding shares of the Company's stock for $30 per share. Among the conditions of Tyson's offer was a requirement that it receive voting rights under Virginia's Control Share Acquisitions Statute for all shares acquired by Tyson and its affiliates. Under the Control Share Statute, any shares acquired in a control share acquisition or prior to a control share acquisition and pursuant to a plan to make a control share acquisition, have no voting rights unless voting rights are granted by a resolution approved by a majority of disinterested shares. A control share acquisition is the direct or indirect acquisition (other than certain excepted acquisitions which are not relevant here) of shares of the Company that, when added to all other shares beneficially owned by the acquiror, would entitle the acquiror to vote 20% or more of the Company's shares. At the May 21, 1994 special meeting, the Company's shareholders defeated Tyson's proposal to grant it voting rights for its control share acquisition. At the meeting, 3,152,830 votes were cast in favor of Tyson's proposal, and 5,977,118 votes were cast against the proposal. There were 53,547 abstentions, and 1,603,800 votes were either withheld or were broker non- votes. Tyson Foods, Inc. terminated its tender offer on August 5, 1994. Executive Officers of the Registrant The following information is given regarding WLR Foods' executive officers.
______________________________________________________________________________ Name and Position Principal Occupation with the Company Age During the Last Five Years ______________________________________________________________________________ James L. Keeler 59 Chief Executive Officer since February 1988 President Chief Executive Officer James L. Mason 45 General Manager and President of Wampler-Longacre General Manager of since April 1990; previously General Manager Wampler-Longacre of Wampler-Longacre Turkey V. Eugene Misner 57 Vice President of Live Production since January 1994; Vice President of previously, General Manager and President of Longacre Wampler-Longacre Chicken since April 1990 Delbert L. Seitz 52 Chief Financial Officer since November 1989; Treasurer, Chief Financial Officer John J. Broaddus 44 General Manager of Cassco since April 1990; General Manager of Cassco previously Executive Vice President of Cassco Henry L. Holler 65 Vice President Sales and Marketing since October Vice President 1993; previously, Vice President of Sales for Sales and Marketing Wampler-Longacre Chicken Kenneth D. Marshall 59 Vice President Plant Operations since October 1993; Vice President previously, Assistant General Manager of Wampler- Plant Operations Longacre Turkey Jane T. Brookshire 49 Vice President of Human Resources since October Vice President 1993; previously, Director of Human Resources for Human Resources WLR Foods ________________ James L. Mason is the son of Herman D. Mason, who is Vice Chairman of the Company's Board.
PART II Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. Public trading of shares of WLR Foods' common stock commenced on May 10, 1988. The stock was included in NASDAQ as of September 12, 1988, and was included in NASDAQ/National Market System as of March 7, 1989. The range of high and low bid information for the stock, as well as information regarding dividends declared by WLR Foods, for each full quarterly period within the two most recent fiscal years is incorporated by reference to Note 13 to the Registrant's Consolidated Financial Statements in the Annual Report, attached hereto as Exhibit 13.3. As of September 27, 1994, the approximate number of shareholders of record was 2,461. Item 6. SELECTED FINANCIAL DATA. Selected financial data for each of the fiscal years in the five- year period ended July 2, 1994 is incorporated by reference to the table entitled "Five Year Financial Highlights" in the Annual Report, attached hereto as Exhibit 13.1. A summary of significant accounting policies and business acquisitions and dispositions is incorporated by reference to Notes 1 and 2 to the Registrant's Consolidated Financial Statements in the Annual Report, attached hereto as Exhibit 13.3. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's discussion and analysis of financial condition and results of operations is incorporated by reference to that section in the Annual Report, attached hereto as Exhibit 13.2. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this Item, except for the required financial statement schedules, is incorporated by reference to the Consolidated Financial Statements and Notes thereto into the Annual Report, attached hereto as Exhibit 13.3. The required financial statement schedules are included on pages 19-22 of this report. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There were no changes in or disagreements with accountants on accounting and financial disclosure during WLR Foods' two most recent fiscal years or any subsequent interim period. PART III Item 10. DIRECTORS OF THE REGISTRANT. Information concerning WLR Foods' directors is incorporated by reference to the Proxy Statement. Item 11. EXECUTIVE COMPENSATION. Information concerning executive compensation is incorporated by reference to the Proxy Statement. Item 12. SECURITY OWNERSHIP OF CERTAIN PERSONS. The information required by this Item is incorporated by reference to the Proxy Statement. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information concerning certain relationships and related transactions is incorporated by reference to the Proxy Statement. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Financial Statements, Schedules and Exhibits (AR designates Annual Report) Financial Statements Location Consolidated Statements of Earnings - Fiscal years ended AR July 2, 1994, July 3, 1993 and June 27, 1992 Consolidated Balance Sheets - July 2, 1994 and July 3, 1993 AR Consolidated Statements of Shareholders' Equity - Fiscal years AR ended July 2, 1994, July 3, 1993 and June 27, 1992 Consolidated Statements of Cash Flows - Fiscal years ended AR July 2, 1994, July 3, 1993 and June 27, 1992 Notes to Consolidated Financial Statements - Fiscal years AR ended July 2, 1994, July 3, 1993 and June 27, 1992 Independent Auditors Report AR Financial Statement Schedules Independent Auditors' Report on Schedules Page 18 Schedule V - Property, Plant and Equipment Page 19 Schedule VI - Accumulated Depreciation and Amortization of Property, Plant and Equipment Page 20 Schedule VIII - Valuation and Qualifying Accounts Page 21 Schedule X - Supplementary Income Statement Information Page 22 (b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth quarter of fiscal 1994 that ended on July 2, 1994. (c) Exhibits 3.1 Articles of Incorporation of the Registrant incorporated by reference to Exhibit 3 on Form 8-K filed with the Securities and Exchange Commission on January 31, 1992 3.2 Bylaws of the Registrant incorporated by reference to Exhibit 3 of Form 8-K filed with the Securities and Exchange Commission on February 15, 1994 4.1 Specimen Stock Certificate incorporated by reference to Exhibit 4 of Form 10-K filed with the Securities and Exchange Commission on September 27, 1990 4.2 Loan Agreement incorporated by reference to Exhibit 4.2 of Form 10-K filed with the Securities and Exchange Commission on September 27, 1991 4.3 Floating Rate Note incorporated by reference to Exhibit 4.3 of Form 10-K filed with the Securities and Exchange Commission on September 27, 1991 4.4 Note Agreement incorporated by reference to Exhibit 4.4 of Form 10-K filed with the Securities and Exchange Commission on September 27, 1991 4.5 Loan Agreement dated June 1, 1994 4.6 Promissory Note dated July 20, 1994 4.7 Shareholder Protection Rights Agreement, dated as of February 4, 1994, which includes as Exhibit A the forms of Rights Certificate and Election to Exercise and as Exhibit B the Form of Certificate of Designation and Terms of the Participating Preferred Stock incorporated by reference to Exhibit 1 of Form 8-A filed with the Securities and Exchange Commission on September 30, 1993 10.1 Employment Agreement dated July 4, 1993 between the Registrant and James L. Keeler (Deferred Compensation Agreement attached thereto as Exhibit A) incorporated by reference to Exhibit 10.6 of Form 10-K filed with the Securities and Exchange Commission on September 30, 1993 10.2 Executive Cash Bonus Program incorporated by reference to Exhibit 10.7 of Form 10-K filed with the Securities and Exchange Commission on September 30, 1993 10.3 Long-Term Incentive Plan, as amended, incorporated by reference to Exhibit 28 of Post-Effective Amendment Number One to Form S-8 (No. 33-27037) filed with the Securities and Exchange Commission on November 18, 1992 10.4 Amendment to Employment Agreement dated February 4, 1994 between the Registrant and James L. Keeler incorporated by reference to Exhibit 10.2 of Form 8-K filed with the Securities and Exchange Commission on February 15, 1994 10.5 Amendment to Deferred Compensation Agreement dated February 4, 1994 between the Registrant and James L. Keeler incorporated by reference to Exhibit 10.3 of the Form 8-K filed with the Securities and Exchange Commission on February 15, 1994 10.6 Severance Agreement dated February 4, 1994 between the Registrant and James L. Keeler incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 10.7 Severance Agreement dated February 4, 1994 between the Registrant and Delbert L. Seitz incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 10.8 Severance Agreement dated February 4, 1994 between the Registrant and James L. Mason incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 10.9 Severance Agreement dated February 4, 1994 between the Registrant and John J. Broaddus incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 10.10 Severance Agreement dated February 4, 1994 between the Registrant and V. Eugene Misner incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 10.11 Deferred Compensation Agreement dated February 4, 1994 between the Registrant and Charles W. Wampler, Jr. incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 10.12 Deferred Compensation Agreement dated February 4, 1994 between the Registrant and Herman D. Mason incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 10.13 Deferred Compensation Agreement dated February 4, 1994 between the Registrant and George E. Bryan incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 10.14 Deferred Compensation Agreement dated February 4, 1994 between the Registrant and William D. Wampler incorporated by reference to Form 10-Q/A filed with the Securities and Exchange Commission on February 23, 1994 13.1 Financial Highlights, from the Registrant's Annual Report to Shareholders for the fiscal year ended July 2, 1994 13.2 Management's Discussion and Analysis, from the Registrant's Annual Report to Shareholders for the fiscal year ended July 2, 1994 13.3 Consolidated Financial Statements and Notes to Consolidated Financial Statements, from the Registrant's Annual Report to Shareholders for the fiscal year ended July 2, 1994 13.4 Independent Auditors' Report on Consolidated Financial Statements, from the Registrant's Annual Report to Shareholders for the fiscal year ended July 2, 1994 21 List of Subsidiaries of the Registrant 22 Excerpts from the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on October 29, 1994 23 Consent of Independent Certified Public Accountants 24 Power of Attorney 27 Financial Data Schedule Schedules not included in this Item have been omitted because they are either not applicable or the information is included in the Consolidated Financial Statements or notes thereto. [The remainder of this page is intentionally left blank.] SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WLR Foods, Inc. By:__/s/ James L. Keeler______________ Its President & Chief Executive Officer Date: September _30_, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. ____/s/ James L. Keeler____________ President & Chief Executive Officer Date: September _30_, 1994 __/s/ Delbert L. Seitz___________ Chief Financial Officer Date: September 30, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on September 30, 1993. Signature Title ______________________________ Director George E. Bryan* ______________________________ Director Charles L. Campbell* ______________________________ Director Stephen W. Custer* ______________________________ Director Calvin G. Germroth* ______________________________ Director William H. Groseclose* ______________________________ Director J. Craig Hott* ______________________________ Director James L. Keeler ______________________________ Director Herman D. Mason* ______________________________ Director Charles W. Wampler, Jr.* ______________________________ Director William D. Wampler* ______________________________ Director Peter A.W. Green* *By _/s/ Delbert L. Seitz______________ Delbert L. Seitz, attorney-in-fact INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES The Board of Directors and Shareholders WLR Foods, Inc.: Under date of August 17, 1994, except Note 14 which is as of August 29, 1994, we reported on the consolidated balance sheets of WLR Foods, Inc. and subsidiaries as of July 2, 1994 and July 3, 1993, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the fiscal years in the three-year period ended July 2, 1994, as contained in the 1994 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Richmond, Virginia August 17, 1994 WLR FOODS, INC. SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR FISCAL YEARS ENDED JULY 2, 1994, JULY 3, 1993 AND JUNE 27, 1992 (in thousands)
Balance at Balance beginning Additions Retirements Transfers at close of year at cost or sales and others of year Fiscal year ended July 2, 1994 Land improvements $ 11,942 2,318 $ 14,260 Buildings and improvements 79,128 3,443 57 82,514 Machinery and equipment 133,401 8,735 752 (95) 141,289 Transportation equipment 22,363 2,735 479 91 24,710 Construction in process 2,452 3,544 4 6,000 --------- ------ ------ -------- --------- Totals $249,286 20,775 1,288 $268,773 ========= ======= ======= ========= ======== Fiscal year ended July 3, 1993 Land improvements $ 9,466 3,054 583 5 $ 11,942 Buildings and improvements 57,485 21,633 4 14 79,128 Machinery and equipment 99,947 33,977 336 (187) 133,401 Transportation equipment 20,289 2,548 642 168 22,363 Construction in process 17,912 (15,460) 2,452 -------- -------- ---- ------ -------- Totals $205,099 45,752 1,565 $249,286 ======== ========= ====== ====== ========== Fiscal year ended June 27, 1992 Land improvements $ 11,983 901 142 (3,276) $ 9,466 Buildings and improvements 49,819 6,080 93 1,679 57,485 Machinery and equipment 86,330 16,442 4,433 1,608 99,947 Transportation equipment 17,675 3,206 585 (7) 20,289 Construction in process 6,026 11,899 9 (4) 17,912 --------- ------ ------ ------- -------- Totals $171,833 38,528 5,262 $205,099 ======== ====== ====== ======= =======
WLR FOODS, INC. SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR FISCAL YEARS ENDED JULY 2, 1994, JULY 3, 1993 AND JUNE 27, 1992 (in thousands)
Balance at Balance beginning Additions Retirements Transfers at close of year at cost or sales and others of year Fiscal year ended July 2, 1994 Land improvements $ 3,471 417 $ 3,888 Buildings and improvements 25,769 3,866 16 18 29,637 Machinery and equipment 64,546 13,960 694 (48) 77,764 Transportation equipment 14,960 3,090 450 30 17,630 -------- ------ ----- ---- ------- Totals $108,746 21,333 1,160 $128,919 ========= ====== ====== ==== ======== Fiscal year ended July 3, 1993 Land improvements $ 3,706 327 562 $ 3,471 Buildings and improvements 22,436 3,337 4 25,769 Machinery and equipment 53,225 11,619 284 (14) 64,546 Transportation equipment 12,715 2,832 601 14 14,960 ------- ------ ----- ---- -------- Totals $92,082 18,115 1,451 $108,746 ======== ======= ===== ==== ======== Fiscal year ended June 27, 1992 Land improvements $ 5,496 307 141 (1,956) $ 3,706 Buildings and improvements 19,273 2,408 93 848 22,436 Machinery and equipment 47,477 8,822 4,182 1,108 53,225 Transportation equipment 10,780 2,504 569 12,715 ------- ----- ------ ----- ------ Totals $83,026 14,041 4,985 $92,082 ======== ====== ====== ====== ========
WLR FOODS, INC. SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS FOR FISCAL YEARS ENDED JULY 2, 1994, JULY 3, 1993 AND JUNE 27, 1992 (in thousands)
Description Balance at Charged to Charged to Balance at beginning cost and other end of of period expenses accounts period Fiscal year ended July 2, 1994 Allowance for Doubtful Accounts $363 156 159 $360 ---- --- --- ---- Total $363 156 159 $360 ==== === === ==== Fiscal year ended July 3, 1993 Allowance for Doubtful Accounts $372 4 13 $363 ---- ---- -- ---- Total $372 4 13 $363 ==== ==== == ==== Fiscal year ended June 27, 1992 Allowance for Doubtful Accounts $472 25 125 $372 ---- -- --- ---- Total $472 25 125 $372 ==== == === ==== WLR FOODS, INC. SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FISCAL YEARS ENDED JULY 2, 1994, JULY 3, 1993 AND JUNE 27, 1992 (in thousands) Charged to costs and expenses ----------------------------- 1994 1993 1992 Maintenance and repairs $26,175 $21,751 $17,805 There were no advertising costs, amortization of intangible assets, taxes (other than payroll and income taxes) or royalties in excess of 1% of net sales during these fiscal years.
EX-4.5 2 EXHIBIT 4.5 LOAN AGREEMENT Exhibit 4.5 LOAN AGREEMENT among WLR FOODS, INC., FIRST UNION NATIONAL BANK OF VIRGINIA, CORESTATES BANK, N.A., CRESTAR BANK, WAMPLER-LONGACRE, INC. and CASSCO ICE & COLD STORAGE, INC. Dated as of June 1, 1994 TABLE OF CONTENTS Recitals Page ARTICLE I Definitions and Rules of Construction Section 1.1 Definitions . . . . . . . . . . . . . . . 1 Section 1.2. Rules of Construction . . . . . . . . . . 10 ARTICLE II Representations Section 2.1. Representations by Obligors . . . . . . 10 ARTICLE III Note Section 3.1. Sale and Purchase of Note . . . . . . . 12 Section 3.2. Conditions Precedent to Delivery of Note 13 ARTICLE IV Loan Section 4.1. Pro Rata Shares . . . . . . . . . . . . 13 Section 4.2. Loan . . . . . . . . . . . . . . . . . . 13 Section 4.3. Advances . . . . . . . . . . . . . . . . 14 Section 4.4. Payment of Temporary Notes . . . . . . . 14 ARTICLE V Payments Section 5.1. Amounts Payable . . . . . . . . . . . . 14 Section 5.2. Default in Payments . . . . . . . . . . 15 Section 5.3. Unconditional Obligations . . . . . . . 15 ARTICLE VI Special Covenants Section 6.1. Insurance . . . . . . . . . . . . . . . . 16 Section 6.2. Cure by Banks . . . . . . . . . . . . . . 17 Section 6.3 Indemnification . . . . . . . . . . . . . 17 Section 6.4. Certificate as to No Default . . . . . . 18 Section 6.5. References to Note Ineffective after Note Paid . . . . . . . . . . . . . . . . 18 Section 6.6. Financial Records and Statements . . . . 19 Section 6.7. Notice of Suits . . . . . . . . . . . . . 19 Section 6.8. Environmental Matters . . . . . . . . . . 19 Section 6.9. Consolidated Adjusted Net Worth . . . . . 20 Section 6.10. Fixed Charge Coverage Ratio . . . . . . . 21 Section 6.11. Funded Debt . . . . . . . . . . . . . . . 21 Section 6.12. Limitations on Liens . . . . . . . . . . 21 Section 6.13. Mergers, Consolidations and Sales of Assets 23 Section 6.14. Restricted Payments . . . . . . . . . . . 24 Section 6.15. Restricted Subsidiaries . . . . . . . . . 25 ARTICLE VII Agency Section 7.1. Appointment of Agent . . . . . . . . . . 25 ARTICLE VIII Guaranty Section 8.1. Guaranty of Obligations . . . . . . . . 26 Section 8.2. Waivers . . . . . . . . . . . . . . . . . 26 Section 8.3. Forbearance and Modifications . . . . . . 27 Section 8.4. Continuing Liability . . . . . . . . . . 27 Section 8.6. Subordination . . . . . . . . . . . . . . 28 Section 8.7. Further Guaranties . . . . . . . . . . . 28 ARTICLE IX Events of Default and Remedies Section 9.1. Event of Default . . . . . . . . . . . . 28 Section 9.2. Remedies on Default . . . . . . . . . . . 30 Section 9.3. No Remedy Exclusive . . . . . . . . . . . 30 Section 9.4. Counsel Fees and Other Expenses . . . . . 30 Section 9.5. No Additional Waiver Implied by One Waiver 30 ARTICLE X Prepayment Section 10.1. Option to Prepay . . . . . . . . . . . . 31 Section 10.2. Mandatory Prepayment . . . . . . . . . . 31 ARTICLE XI Miscellaneous Section 11.1. Term of Agreement . . . . . . . . . . . 31 Section 11.2. Successors and Assigns . . . . . . . . . 31 Section 11.3. Jurisdiction and Venue . . . . . . . . . 32 Section 11.4. Severability . . . . . . . . . . . . . . 32 ii Section 11.5. Applicable Law; Entire Understanding . . 32 Section 11.6. Counterparts . . . . . . . . . . . . . . 32 Section 11.7. Notices . . . . . . . . . . . . . . . . 32 Section 11.8. Other Agreements . . . . . . . . . . . . 33 EXHIBIT 1 iii THIS LOAN AGREEMENT, made as of the first day of June, 1994, among WLR FOODS, INC., a Virginia corporation (the "Borrower"), FIRST UNION NATIONAL BANK OF VIRGINIA, a national banking association, CORESTATES BANK, N.A., also doing business as Philadelphia National Bank, a national banking association, and CRESTAR BANK, a Virginia banking corporation (collectively, the "Banks"), and WAMPLER-LONGACRE, INC., a Virginia corporation, and CASSCO ICE & COLD STORAGE, INC., a Virginia corporation (collectively, the "Guarantors"); WITNESSETH: WHEREAS, the Banks intend to make a loan, as hereinafter described, to the Borrower; and the Borrower intends to issue and deliver to the Banks the Note, as hereinafter defined, in order to evidence the Borrower's obligation to repay such loan; and WHEREAS, the Banks, the Borrower and the Guarantors desire to set forth the terms and conditions with respect to such financing; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I Definitions and Rules of Construction Section 1.1. Definitions. In addition to other terms defined elsewhere in this Agreement, the following terms shall have the following meanings in this Agreement unless the context otherwise requires: "Additional Dividend Amount" shall mean, as of the date of calculation thereof, an amount equal to the dividends paid upon the common stock of the Borrower during the two immediately preceding (as of such date) fiscal years of the Borrower, computed at the rate of the regular quarterly dividend then paid by the Borrower on its outstanding common stock. "Adjusted Net Worth" shall mean, with respect to any person as at any date of determination thereof, the stockholder's equity account of such person as reflected in the most recent (as of such date) financial statements of such person, less (a) goodwill, trade names, trademarks, service marks, patents and such other assets which are properly classified as "intangible assets", (b) unamortized debt discount and expenses relating to indebtedness issued subsequent to May 1, 1991 and (c) write-ups of assets occurring subsequent to May 1, 1991. "Advances" shall mean the advances of the proceeds of the Loan made pursuant to Article IV. "Agent" shall mean First Union National Bank of Virginia, as agent for the Banks, and any successor as such agent. "Agreement" shall mean this Loan Agreement, including any amendments hereto. "Authorized Representative" shall mean any person designated to act on behalf of the Borrower by certificate signed by the president, a vice president, the secretary or the treasurer of Borrower and filed with the Agent. "Banks" shall mean, collectively, FUNB, CBNA and Crestar. "Borrower" shall mean WLR Foods, Inc., a Virginia corporation. "Business Day" shall mean any Monday, Tuesday, Wednesday, Thursday or Friday other than a day on which one or more Banks are temporarily closed. "CBNA" shall mean Corestates Bank, N.A., also doing business as Philadelphia National Bank, as a holder of the Note, or any subsequent holder of the portion of the Note initially held by Corestates Bank, N.A., also doing business as Philadelphia National Bank. "Capitalized Lease" shall mean any lease of property, real or personal, the obligation for Rentals with respect to which is required to be capitalized on a balance sheet of the lessee or for which the amount of the asset and liability thereunder, as if so capitalized, would be required to be disclosed in a note to such balance sheet, in accordance with generally accepted accounting principles. "Capitalized Rentals" shall mean, as of the date of any determination, the amount at which the aggregate Rentals due and to become due under all Capitalized Leases under which the Borrower or any Subsidiary is a lessee would be reflected as a liability on a consolidated balance sheet of the Borrower and its Subsidiaries. "Closing Date" shall mean the date of the execution and delivery of this Agreement and the Note. "Consolidated Adjusted Capital" shall mean, as at any date of determination thereof, the sum of the Consolidated Adjusted Net Worth and the Consolidated Funded Debt on such date. "Consolidated Adjusted Net Worth" shall mean, as at any date of determination thereof, the Adjusted Net Worth of the Borrower and its Restricted Subsidiaries on a consolidated basis. "Consolidated Funded Debt" shall mean, as at any date of determination, the Funded Debt of the Borrower and its Restricted Subsidiaries outstanding on such date, consolidated in accordance with generally accepted accounting principles, plus any Short- Term Debt of the Borrower and its Restricted Subsidiaries which would be included in Funded Debt pursuant to Section 6.11. "Consolidated Net Income" for any period shall mean the gross revenues of the Borrower and its Subsidiaries for such period, less all expenses and other proper charges (including taxes on income), determined on a consolidated basis without taking into account: (a) any gains on the Disposition (other than in the ordinary course of business) of investments or fixed or capital assets, to the extent the aggregate gains on such Dispositions exceed any losses from the Disposition of such assets, and any taxes on such excluded gains and any tax deductions or credits on account of any such excluded losses; (b) the proceeds of any life insurance policy on the life of any officer, director or employee of the Borrower or any of its Subsidiaries; (c) net earnings and losses of any Restricted Subsidiary accrued prior to the date it became a Restricted Subsidiary; (d) net earnings and losses of any corporation, substantially all of the assets of which have been acquired by the Borrower or any of its Subsidiaries in any manner realized by such corporation prior to the date of such acquisition; (e) net earnings and losses of any corporation with which the Borrower or a Restricted Subsidiary shall have consolidated or which shall have merged into or with the Borrower or a Restricted Subsidiary prior to the date of such consolidation or merger; (f) net earnings of any business entity (other than a Restricted Subsidiary) in which the Borrower or any Restricted Subsidiary has an ownership interest unless such net earnings shall have actually been received by the Borrower or such Restricted Subsidiary in the form of cash distributions; (g) any portion of the net earnings of any Restricted Subsidiary which for any reason is unavailable for payment of dividends to the Borrower or any other Restricted Subsidiary; (h) earnings resulting from any reappraisal, revaluation or write-up of assets; (i) any deferred or other credit representing any excess of the equity in any corporation at the date of acquisition thereof over the amount invested in such corporation; (j) any gain arising from the acquisition of any securities of the Borrower or any Subsidiary; and (k) any gains or losses, or other income, properly classified as extraordinary, including in any event gains arising upon the discontinuance of operations. "Consolidated Pre-Tax Income" shall mean for any period the sum of (a) Consolidated Net Income for such period, plus (b) to the extent deducted in determining Consolidated Net Income, (i) all provisions for any federal, state or other income taxes made by the Borrower and its Restricted Subsidiaries during such period and (ii) Fixed Charges during such period. "Crestar" shall mean Crestar Bank, as a holder of the Note, or any subsequent holder of the portion of the Note initially held by Crestar Bank. "Disposition" shall mean a sale, lease, transfer or other disposition. "Event of Default" shall mean any of the events set forth in Section 9.1. "Excess Proceeds" shall mean the amount by which the net proceeds, which shall include the fair market value of property other than cash, received by the Borrower and its Restricted Subsidiaries from the Disposition or Dispositions of all or a Substantial Part of the assets of the Borrower and its Restricted Subsidiaries exceed the amount which the Borrower applied in the twelve-month period immediately following such Disposition or Dispositions to the acquisition of, or investment in, Like Assets. "FUNB" shall mean First Union National Bank of Virginia, as a holder of the Note, or any subsequent holder of the portion of the Note initially held by First Union National Bank of Virginia. "Financing Instruments" shall mean this Agreement and the Note. "Fixed Charges" shall mean for any period the sum of (a) interest expense and amortization of debt discount and expense on Indebtedness of the Borrower and its Restricted Subsidiaries for such period and (b) total rental expense of the Borrower and its Restricted Subsidiaries under all leases other than Capitalized Leases. "Funded Debt" of any person shall mean all Indebtedness (excluding minority interests and deferred items but including Capitalized Rentals) owed or guaranteed which by its terms matures more than one year from the date of its creation or which is renewable at the option of the obligor for more than one year from such date, whether or not theretofore renewed; provided that, except as provided in Section 6.11, amounts outstanding under a revolving credit facility shall not constitute Funded Debt. "Guarantee Obligations" of any person shall mean, without duplication, all obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection and the Borrower's guarantee of any obligation of any Restricted Subsidiary) of such person guaranteeing or in effect guaranteeing any Indebtedness or other obligation (including any dividend) of any other person (the "Primary Obligor") in any manner, whether directly or indirectly, including, without limitation, all obligations incurred through an agreement, contingent or otherwise, by such person (a) to purchase such Indebtedness or obligation or any property or assets constituting security therefor, (b) to advance or supply funds (i) for the purchase or payment of such Indebtedness or obligation, or (ii) to maintain fixed charge coverage or working capital or other balance sheet condition or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation, or (c) to lease property or to purchase securities or other property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the Primary Obligor to make payment of the Indebtedness or obligation, or (d) otherwise to assure the owner of the Indebtedness or obligation of the Primary Obligor against loss in respect thereof. For the computations made under this Agreement, a Guarantee Obligation in respect of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the principal amount of such Indebtedness for borrowed money which has been guaranteed, and a Guarantee Obligation in respect of any other obligation or liability or any dividend shall be deemed to be Indebtedness equal to the maximum aggregate amount of such obligation, liability or dividend. "Guarantors" shall mean, collectively, Wampler-Longacre, Inc. and Cassco Ice & Cold Storage, Inc., both of which are Virginia corporations. "Guaranty" shall mean the guaranty by the Guarantors provided for in Article VIII. "Indebtedness" of any person shall mean and include all obligations of such person which should be classified upon a balance sheet of such person as liabilities of such person, and shall include all (a) obligations of such person for borrowed money or which has been incurred in connection with the acquisition of property or assets, (b) obligations secured by any Lien on property or assets owned by such person, even though such person has not assumed or become liable for the payment of such obligations, (c) obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of property, (d) Guarantee Obligations, (e) Capitalized Rentals under any Capitalized Lease and (f) any recourse obligations arising upon a sale of assets. Any Indebtedness extended or renewed other than at the option of the obligor pursuant to the terms thereof, will be deemed to have been incurred at the time of such extension or renewal. "Intercreditor Agreement" shall mean the Intercreditor Agreement of even date herewith among the Banks and the Agent. "Investments" shall mean all investments made, in cash or by delivery of property, directly or indirectly, in any person, whether by acquisition of shares of capital stock, indebtedness or other obligations or securities or by loan, advance, capital contribution or otherwise; provided that Investments shall not include routine investments in property to be used or consumed in the ordinary course of business. "Land" shall mean all land now or hereafter owned by the Borrower. "Lien" shall mean any mortgage, deed of trust, pledge, security interest, encumbrance, lien or charge of any kind, or conditional sales agreement or other arrangement for the retention of title (including any Capitalized Lease), on any real or personal property. "Like Assets" shall mean any capital assets used or to be used by the Borrower or any of its Restricted Subsidiaries in the lines of business conducted by the Borrower and its Restricted Subsidiaries during the most recent fiscal year of the Borrower which ended prior to the Closing Date and businesses related thereto. "Loan" shall mean a loan in the maximum amount of $25,000,000 made by the Banks to the Borrower as provided for in this Agreement. "Note" shall mean the promissory note issued by the Borrower to evidence its obligation to repay the Loan in a maximum principal amount of $25,000,000. "Obligors" shall mean, collectively, the Borrower and the Guarantors. "Payment of the Note" shall mean payment in full of the Note and the making in full of all other Required Payments due and payable at the time of such payment. "Prime Rate" shall mean the rate of interest established by First Union National Bank of Virginia from time to time as its prime rate, with the effective date of any change in the Prime Rate being the effective date of the applicable change in the prime rate so established. The Prime Rate is not the lowest or most favorable rate of interest charged by First Union National Bank to its customers. "Pro Rata" shall mean in proportion to the Banks' Pro Rata Shares. "Pro Rata Share" shall mean, for each Bank, the percentage specified for such Bank in Section 4.1. "Qualified Investments" shall mean any and all of the following Investments of the Borrower and its Restricted Subsidiaries: (a) Investment in Restricted Subsidiaries or entities which contemporaneously become Restricted Subsidiaries. (b) Investments in direct obligations of the United States of America, or obligations of any instrumentality or agency thereof maturing one year or less after acquisition the payment of the principal and interest of which is unconditionally guaranteed by the United States of America. (c) Investments in repurchase agreements and certificates of deposit due within twelve months from the date of acquisition thereof issued by any bank or trust company located within the United States of America, organized under its laws or the laws of any state thereof and having total assets of at least $500,000,000. (d) Investments in commercial paper of any corporation maturing within 270 days of acquisition and rated either "prime-1" or higher by Moody's Investors' Services, Inc. or "A-1" or higher by Standard & Poor's Rating Group, or other comparable rating if such rating systems are changed. (e) Investments acquired solely in exchange for capital stock of the Borrower. "Rentals" shall mean and include all rents (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the property) payable by the Borrower or a Restricted Subsidiary, as lessee or sublessee under a lease of real or personal property, but shall be exclusive of any amounts required to be paid by the Borrower or a Subsidiary (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes, and similar charges. "Request for Borrowing" shall mean the written notice given by an Authorized Representative to the Agent pursuant to Section 4.2. "Required Payment" shall mean any payment of money required under the terms of the Financing Instruments to be made by the Obligors. "Restricted Subsidiary" shall mean each Guarantor, May Supply Company, Inc., Rockingham Poultry, Inc., a Virginia corporation, Rockingham Poultry, Inc., a Virgin Islands corporation, and any Subsidiary (a) organized under the laws of the United States of America, the Commonwealth of Puerto Rico or Canada or a jurisdiction thereof, (b) which conducts substantially all of its business and has substantially all of its property within the United States of America, the Commonwealth of Puerto Rico and/or Canada, (c) at least 80% of the ownership interest of which is owned by the Borrower or a Wholly-Owned Restricted Subsidiary, and (d) which has been designated a Restricted Subsidiary by the Board of Directors of the Borrower, but only if such designation does not result in an Event of Default or an event or condition which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. Any Subsidiary which has been so designated for purposes of the Senior Note Agreement shall be deemed to have been so designated for purposes of this Agreement. "Security" shall mean any funds, agreements, property, rights or interests of any nature whatsoever, guaranties of and any subordination and/or standby agreements related to the Obligations (as defined in Section 8.1) which have been or hereafter are mortgaged, pledged, assigned, transferred, executed or delivered, directly or indirectly, to the Agent or any Bank as security for or guaranty of the payment or performance of any Obligation. "Senior Note Agreement" shall mean the Note Agreement dated as of May 1, 1991 among the Borrower and the purchasers of the 9.41% Senior Notes described therein. "Short-term Debt" of any person shall mean all Indebtedness of such person for borrowing money or which has been incurred in connection with the acquisition of assets, other than any such Indebtedness which constitutes Funded Debt, but, in any event, including any amounts outstanding under a revolving credit facility. "Subsidiary" shall mean a subsidiary of the Borrower, for which purpose "subsidiary" shall mean, as to any particular parent corporation, any corporation of which more than 50% (by number of votes) of the Voting Stock shall be owned or controlled by such parent corporation and/or one or more corporations which are themselves subsidiaries of such parent corporation. "Substantial Part" shall mean assets of the Borrower or any Restricted Subsidiary, including the common stock of any Subsidiary, which in the aggregate contributed more than 15% of the sum of (a) operating income, as set forth in the Borrower's consolidated income statements for the twelve-month period ending as of the last day of the most recently ended quarter for which financial statements are required to be delivered pursuant to Section 6.6, and (b) depreciation and amortization for such period to the extent deducted in determining operating income, in each case of the Borrower and its Restricted Subsidiaries on a consolidated basis. "Temporary Notes" shall mean, collectively, the three promissory notes of the Borrower dated May 24, 1994, one of which is payable to each Bank. "Unrestricted Subsidiary" shall mean any Subsidiary which is not a Restricted Subsidiary. "Voting Stock" shall mean the capital stock of any class or classes of a corporation, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of the members of the board of directors of such corporation, or persons performing similar functions (irrespective of whether or not at the time stock of any class shall have or might have special voting power or rights by reason of the happening of any contingency). Reference to a percentage of Voting Stock shall mean a percentage of the votes represented by such Voting Stock and not to the number of shares if there are classes of Voting Stock possessing different voting rights. "Wholly-owned", when used in connection with any Restricted Subsidiary, shall mean a Restricted Subsidiary of which all of the issued and outstanding shares of stock (except shares required as directors' qualifying shares) and all Indebtedness for borrowed money shall be owned by the Borrower and/or one or more of the Wholly-Owned Restricted Subsidiaries. Section 1.2. Rules of Construction. The following rules shall apply to the construction of the Financing Instruments unless the context otherwise requires: (a) Words importing the singular number shall include the plural number and vice versa, and any gender shall connote another gender. (b) All references in a Financing Instrument to particular articles or sections are references to articles or sections of such Financing Instruments unless otherwise indicated. (c) The headings and Table of Contents in any Financing Instrument are solely for convenience of reference and shall not constitute a part of such Financing Instrument, nor shall they affect its meaning, construction or effect. (d) Words importing the prepayment or calling for prepayment of the Note shall not be deemed to refer to or connote the payment of the Note at its stated maturity. (e) All accounting terms used in any Financing Instrument which are not expressly defined therein shall have the meanings respectively given to them in accordance with generally accepted accounting principles applicable to entities of the same character as the Borrower. All financial computations made pursuant to any Financing Instrument shall be made in accordance with generally accepted accounting principles applicable to entities of the same character as the Borrower consistently applied, and all balance sheets and other financial statements shall be prepared in accordance with generally accepted accounting principles applicable to entities of the same character as the Borrower consistently applied. ARTICLE II Representations Section 2.1. Representations by Obligors. Each Obligor makes the following representations as the basis for its undertakings hereunder: (a) Such Obligor is a stock corporation duly organized under the laws of Virginia and is in good standing therein, has the power and authority to own its properties and to enter into the Financing Instruments to which it is a party and the transactions contemplated thereby and to perform its obligations thereunder, and by proper corporate action has duly authorized the execution and delivery of such Financing Instruments. Such Obligor is qualified to do business in each state in which it is now doing business. (b) Other than litigation with Tyson Foods, Inc. which has previously been disclosed to the Banks, no litigation at law or in equity or any proceeding before any governmental agency involving such Obligor is pending or, to the knowledge of such Obligor, threatened in which any liability of such Obligor is not adequately covered by insurance or in which any judgment or order would have a material adverse effect upon the business or assets of such Obligor or that would affect its authority to do business, the validity of the Financing Instruments to which such Obligor is a party or the performance of its obligations thereunder. (c) The execution and delivery of, and compliance by such Obligor with the terms and conditions of, the Financing Instruments to which it is a party will not constitute or result in a default under or violation of (i) such Obligor's articles of incorporation or bylaws, (ii) any agreement or other instrument to which such Obligor is a party or by which it or its property is bound, or (iii) any constitutional or statutory provision or order, rule, regulation, decree or ordinance of any court, government or governmental authority having jurisdiction over such Obligor or its property. (d) Such Obligor has obtained all consents, approvals, authorizations and orders of any governmental or regulatory authority that are required to be obtained by such Obligor as a condition precedent to the issuance of the Note, the execution and delivery of the Financing Instruments to which such Obligor is a party, or the performance by such Obligor of its obligations thereunder. (e) No Event of Default has occurred and is continuing, and no event has occurred and is continuing which, with notice or lapse of time or both, would constitute an Event of Default. (f) All of the Financing Instruments to which such Obligor is a party have been duly authorized by such Obligor and, assuming due execution and delivery of the Financing Instruments by the other parties thereto, are valid, enforceable and binding obligations of such Obligor; provided that (i) the obligations of such Obligor under such Financing Instruments are subject to usual principles of equity and to applicable bankruptcy, insolvency, reorganization and similar laws affecting creditors' rights generally, and (ii) the enforceability of the indemnity provisions herein may be limited by applicable securities laws and public policy. ARTICLE III Note Section 3.1. Sale and Purchase of Note. The Borrower shall issue and sell the Note to the Banks. Each Bank represents that it is purchasing its Pro Rata Share of the Note for its own account for investment and has no present intention of reselling or disposing of such Pro Rata Share or engaging in any "distribution" thereof (as that term is used in the Securities Act of 1933, as amended, and the regulations of the Securities and Exchange Commission thereunder). Each Bank represents that it is familiar with the operations and financial condition of the Obligors based upon information furnished to such Bank by the Obligors and has made such inquiries as it deems appropriate in connection with the purchase of such Pro Rata Share. No Bank shall assign or offer any portion of the Note, or any participation therein, for sale in any state of the United States without first (a) either (i) taking all necessary action to qualify such portion for offer and sale under the securities and "Blue Sky" laws of the United States and such state or (ii) determining that no such action is necessary because of a registration exemption or exemptions, and (b) providing to the purchaser of such portion, or any participant therein, all material information in such Bank's possession necessary to evaluate the risks and merits of the investment represented by the purchase of or participation in such portion. The Obligors represent that no Financing Instrument nor any information (financial or otherwise) furnished by or on behalf of the Obligors in connection with the negotiation or the sale of the Note contains any untrue statement of a material fact or omits (when considered together with all information furnished) a material fact necessary to make the statements contained therein, in the light of the circumstances in which they were made, not misleading. There is no fact that the Obligors have not disclosed in writing to each Bank that materially affects adversely or, so far as the Obligors can now foresee, based on facts known to them, will have a material adverse effect on the properties, business, prospects, profits or condition (financial or otherwise) of any Obligor or the ability of any Obligor to perform its obligations under the Financing Instruments. Section 3.2. Conditions Precedent to Delivery of Note. The Agent shall be required to accept delivery of the Note, on behalf of the Banks, only upon delivery to it, in form and substance satisfactory to it, of the following: (a) Executed copies of the Financing Instruments. (b) The certificates or policies of insurance required by Section 8.3. (c) Evidence of the due authorization, execution and delivery of the Financing Instruments by the parties thereto. (d) The Banks' commitment fee of $100,000, which shall be shared Pro Rata by the Banks. (e) Certified copies of (i) the resolutions of the Obligors' boards of directors authorizing execution and delivery of the Financing Instruments, (ii) the articles of incorporation of each Obligor, and (iii) the bylaws of each Obligor. (f) Evidence satisfactory to the Agent that no Hazardous Substances (as defined in Section 6.8) are located on, in or under the Land. (g) An opinion of counsel for the Obligors. (h) Such other documentation, certificates and opinions as may be reasonably required by the Agent or any Bank. ARTICLE IV Loan Section 4.1. Pro Rata Shares. the Pro Rata Share for each Bank shall be as follows: (a) for FUNB, 40%, (b) for CBNA, 40%, and (c) for Crestar, 20%. Section 4.2. Loan. The Banks shall make the Loan by making Advances to the Borrower in such amounts as may be requested from time to time by an Authorized Representative in a Request for Borrowing; provided that the aggregate amount of Advances made under the Loan shall not exceed the maximum principal amount of the Note; and provided further that no Advance shall be in an amount of less than $1,000,000. Each Request for Borrowing shall be in the form of Exhibit 1 hereto and shall be delivered to the Agent not later than 10:00 a.m. on the Business Day preceding the Business Day on which the Advance requested thereby is to be made. Section 4.3. Advances. An Advance shall be made by one or more checks or wire transfers paid to such person as may be specified in the applicable Request for Borrowing. Each Bank shall pay, or cause the Agent to pay on its behalf, its Pro Rata Share of each Advance. No Bank shall be required to pay, as its portion of the Advances, an aggregate amount exceeding its Pro Rata share of the maximum principal amount of the Note. The Banks shall be not required to make any requested Advance until the Agent shall have received all of the items specified in Section 3.2, even if the Agent shall have accepted delivery of the Note, or the Banks shall have made any earlier Advance, without having received all of such items. The Banks also shall not be required to make any requested Advance at any time that an event has occurred and is continuing which constitutes or, with notice or lapse of time or both, would constitute an Event of Default. No Advance shall be made more than three months after the Closing Date or after the date on which the Note is payable in full. Section 4.4. Payment of Temporary Notes. So long as any principal of the Temporary Notes remains unpaid, the Borrower shall apply the amount of each Advance to the payment of such principal, and the Agent may cause any Advance to be so applied rather than paying the amount thereof to the person indicated in the applicable Request for Borrowing. If the principal of the Temporary Notes shall not have been paid in full before July 24, 1994, an Authorized Representative shall be deemed to have submitted a Request for Borrowing for an Advance to be made on such date in an amount equal to the outstanding principal balance of the Temporary Notes, and the Agent shall cause the amount of such Advance to be applied to the payment of such principal balance. ARTICLE V Payments Section 5.1. Amounts Payable. (a) The Borrower shall make all payments required under the Note, as and when the same become due (whether at maturity, by acceleration or otherwise), in the manner set forth in the Note and shall make all other Required Payments in the manner set forth in the applicable Financing Instruments. Payments to the Agent shall be made in lawful money of the United States of America at the address of the Agent set forth in Section 11.7 or at such other place as the Agent may direct in writing. Any amount at any time paid to the Agent as a payment of principal of or interest on the Note as the same become due shall be credited against the Borrower's obligations hereunder as of the date such obligations are due (but subject to collection of any instrument, draft, check or order for payment received by the Agent). (b) The Borrower shall pay (i) the reasonable fees and expenses of the Banks, the Agent and counsel to the Banks and the Agent and all other costs, fees and expenses incidental to the financing hereunder, the issuance of the Note and the costs of producing the Financing Instruments, (ii) all taxes of any kind whatsoever lawfully assessed, levied or imposed with respect to the transactions contemplated by this Agreement, and (iii) all costs of collection (including reasonable counsel fees) in the event of a default in the payment of the principal of or interest on the Note or other charges payable under this Agreement. The obligations of the Borrower under this subsection shall survive Payment of the Note. Section 5.2. Default in Payments. If the Borrower should fail to make any Required Payment of principal of and/or interest on the Note by the date which is seven days after the due date for such Required Payment, the Borrower shall pay the Banks, on a Pro Rata basis, a late charge in an amount equal to the lesser of (a) 5% of the amount of such Required Payment or (b) $1,200. If the Borrower should fail to make any other Required Payment when due, the Borrower shall, to the extent permitted by law, pay interest thereon at the Prime Rate plus 0.5%. Section 5.3. Unconditional Obligations. The obligations of the Obligors to make Required Payments and to perform and observe all other covenants, conditions and agreements hereunder shall be general obligations of the Obligors and shall be absolute and unconditional, irrespective of any defense or any rights of setoff, recoupment or counterclaim any Obligor might otherwise have against the Agent or any Bank. Nothing in this section shall be construed as a waiver by the Obligors of any rights or claims any of them may have against the Agent or any Bank under this Agreement or otherwise, but any recovery upon such rights and claims shall be had from the Agent or such Bank, as the case may be, separately. Subject to Section 10.1, the Obligors shall not suspend or discontinue any such payment hereunder or fail to observe and perform any of their other covenants, conditions and agreements under the Financing Instruments for any cause, including without limitation any acts or circumstances that may constitute failure of consideration, or commercial frustration of purpose, or any change in the tax or other laws of the United States of America, the Commonwealth of Virginia or any political subdivision of either, or any failure of the Agent or the Banks to observe and perform any covenant, condition or agreement, whether express or implied, or any duty, liability or obligation contained in or arising out of or in connection with any Financing Instrument. ARTICLE VI Special Covenants Section 6.1. Insurance. The Obligors shall continuously maintain, or cause to be maintained, insurance against such risks as are customarily insured against by businesses or owners of like size and character, paying as the same become due all premiums in respect thereto, including without limitation: (a) Insurance to the extent of $1,000,000 single limit against liability for bodily injury, including death resulting therefrom, and damage to property, including loss of use thereof, arising out of the ownership, maintenance or use of any of the Obligors' properties. (b) Workers' compensation insurance with respect to all employees of each Obligor, unless such Obligor qualifies as a self-insurer under the laws of each state in which it has employees. (c) Such other insurance as the Agent or any Bank may reasonably require. All such insurance shall be taken out and maintained with generally recognized responsible insurance companies qualified to do business in the applicable states and having ratings from A. M. Best & Co. of A or higher, which insurance companies are selected by the Borrower and acceptable to the Agent and may be written with deductible amounts comparable to those on similar policies carried by other businesses of like size and character. All such policies shall be deposited with the Agent; provided that in lieu of such policies there may be delivered to the Agent a certificate or certificates of the respective insurers attesting the fact that the required insurance is in force and effect. Prior to the expiration of any such policy the Borrower shall furnish the Agent evidence satisfactory to the Agent that the policy has been renewed or replaced or is no longer required by this Agreement. In lieu of separate policies the Obligors may maintain blanket or umbrella policies if such policies provide the same coverage required above with protection against each risk not reducible by claims for other risks to amounts less than that specified above and the Borrower deposits with the Agent a certificate or certificates of the respective insurers evidencing such coverage. Each policy required by this section shall contain an undertaking by the insurer (if such shall be available at reasonable cost) that such policy shall not be modified adversely to the interests of the Banks or canceled without at least 30 days' prior written notice to the Agent. Section 6.2. Cure by Banks. If any obligor shall fail to make any payment or perform any act required of it hereunder, the Agent or any Bank, without prior notice to or demand upon the Obligors and without releasing any obligation or waiving any default, may (but shall be under no obligation to) make such payment or perform such act. All amounts so paid by the Agent or any Bank and all costs, fees and expenses so incurred, including reasonable counsel fees, shall be immediately due and payable by the Borrower as an additional obligation under this Agreement, together with interest thereon at the Prime Rate plus 0.5%, to the extent permitted by law. Section 6.3. Indemnification. (a) The Borrower shall protect, indemnify and save harmless the Banks, the Agent and any persons who "controls" (within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20(a) of the Securities Exchange Act of 1934, as amended) any Bank or the Agent (collectively, the "Indemnified Parties") from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, attorneys' fees and expenses and settlement amounts) imposed upon or incurred by or asserted against any Indemnified Party on account of or related to (i) any failure of the Obligors to comply with any of the terms, warranties, covenants or representations in the Financing Instruments, or (ii) any loss or damage to property or any injury to or death of any person that may be occasioned by any cause whatsoever pertaining to any property of the Obligors or the use thereof; provided that such indemnity shall be effective only to the extent of any loss that may be sustained by an Indemnified Party in excess of the proceeds received by it from any insurance carried with respect to such loss and provided further that benefits of this section shall not inure to any person other than the Indemnified Parties. Nothing contained herein shall require the Borrower to indemnify any Indemnified Party for any claim or liability resulting from its negligence or willful, wrongful acts. (b) The Borrower shall also indemnify and hold harmless the Indemnified Parties against any and all losses, claims, damages, or liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in information submitted by any Obligor to any Bank with respect to the issuance and purchase of the Note or caused by any omission or alleged omission of any material fact necessary to be stated therein in order to make such statements to such Bank not misleading or incomplete. (c) If any action is brought against any Indemnified Party in respect of which indemnity may be sought from the Borrower under subsection (a) or (b) above, such Indemnified Party shall promptly notify the Borrower in writing, and the Borrower shall assume the defense thereof, including the employment of counsel, the payment of all expenses and the right to negotiate and consent to settlement. Each Indemnified Party has the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel will be at the expense of such Indemnified Party unless the employment of such counsel has been specifically authorized by the Borrower. The Borrower will not be liable for any settlement of any such action made without its consent, but if such action is settled with the consent of the Borrower or if there be a final judgment for the plaintiff in such action, the Borrower shall indemnify and hold harmless the Indemnified Parties from and against any loss or liability by reason of such settlement or judgment. (d) The obligations of the Borrower under this section shall survive Payment of the Note. All references in this section to any Indemnified Party shall include its directors, officers, employees and agents. Section 6.4. Certificate as to No Default. The Borrower shall deliver to the Agent concurrently with the delivery of each of the audited financial statements of the Borrower provided for in Section 6.6 a certificate signed by the president, a vice president or the treasurer of the Borrower stating that, during the period covered by such financial statements and as of the date of such certificate, no event or condition has occurred or existed, or is occurring or existing, that constitutes or that, with notice or lapse of time or both, would constitute an Event of Default, or if such an event or condition has occurred or existed, or is occurring or existing, specifying the nature and period of such event or condition and what action the Obligors have taken, are taking or propose to take with respect thereto. Each Obligor shall promptly notify the Agent at any time such Obligor becomes aware of any event or condition described in the preceding sentence. Section 6.5. References to Note Ineffective after Note Paid. Upon Payment of the Note, all references in this Agreement to the Note shall be ineffective, and the Agent and the Banks shall thereafter have no rights hereunder, except as explicitly provided herein. Section 6.6. Financial Records and Statements. The Obligors shall maintain proper books of record and account, in which full and correct entries shall be made, in accordance with generally accepted accounting principles applicable to entities of the same character as the Obligors, of all their business and affairs. Each Obligor, within 120 days after the end of each of its fiscal years, shall furnish the Agent copies of the balance sheet of such Obligor as of the end of such fiscal year and statement of income of such Obligor for such fiscal year, all in reasonable detail and including supporting schedules. All financial statements referred to in the preceding sentence shall be accompanied by an unqualified opinion, or other opinion satisfactory to the Agent, with respect thereto rendered by independent certified public accountants. Each Obligor, within 60 days after the end of each quarter of each of its fiscal years, shall furnish the Agent copies of the unaudited balance sheet of such Obligor as of the end of such quarter and unaudited statement of income of such Obligor for such quarter, all in reasonable detail and including supporting schedules. All financial statements referred to in the preceding sentence shall be certified by such Obligor. Each Obligor shall furnish the Agent such additional unaudited financial statements of such Obligor as the Agent may reasonably request. Any financial statements of any Obligor required by this section may be prepared on a consolidated basis so long as the parent corporation for the consolidated corporations to which such statements relate is an Obligor and all subsidiaries reflected therein are wholly-owned subsidiaries or Restricted Subsidiaries. Section 6.7. Notice of Suits. The Obligors shall notify the Agent as soon as any obligor has knowledge thereof of any actions, suits or proceedings at law, in equity or before or by any governmental authority, pending or threatened, involving the validity or enforceability of any of the Financing Instruments or which involves an alleged or potential liability of any Obligor exceeding $5,000,000. Section 6.8. Environmental Matters. (a) The Borrower warrants and represents that (i) the Land is now and at all times will be in full compliance with all federal, state and local environmental laws and regulations, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act and the Superfund Amendments and Reauthorization Act of 1986, (ii) to the best knowledge of the Borrower, as of the date hereof there are no hazardous materials, substances or wastes or other environmentally regulated substances, including, without limitation, any materials containing asbestos (collectively, "Hazardous Substances") located on, in or under the Land or used in connection therewith, other than any Hazardous Substances (A) which the Borrower is legally authorized to maintain in, on or under the Land or use in connection therewith, and (B) the existence, extent and nature of which has been disclosed to the Agent in writing by the Borrower, (iii) the Borrower has obtained and will maintain all licenses, permits and approvals conferring such legal authorization and is in full compliance with all of the terms, conditions and requirements of such licenses, permits and approvals, and (iv) the Borrower has not received any citation, order, notice or other material governmental or other communication with respect to any Hazardous Substances regarding the Land, nor, to the best knowledge of the Borrower, has any such citation, order, notice or other communication been received by any previous owner or operator of the Land. (b) The Borrower shall promptly notify the Agent of any change in the existence, extent or nature of any Hazardous Substances located on, in or under the Land or used in connection therewith. The Borrower shall promptly (i) transmit to the Agent copies of any citations, orders, notices or other material governmental or other communications received by the Borrower with respect to any Hazardous Substances, and (ii) advise the Agent of any enforcement actions taken by local, state or federal governmental agencies, or claims by other parties, relating to any Hazardous Substances affecting the Land. (c) The Borrower shall indemnify the Agent and each Bank and hold them harmless from and against any and all damages, penalties, fines, claims, liens, suits, liabilities, costs (including cleanup costs), judgments and expenses (including attorneys', consultants' or experts' fees and expenses) of every kind and nature suffered by or asserted against the Agent or any Bank as a direct or indirect result of (i) any representation set forth in this section being incorrect in any material respect, (ii) the breach of any warranty or covenant set forth in this section, (iii) any federal, state or local law, regulation or ordinance which requires the elimination or removal of any Hazardous Substances which are at any time located on, in or under the Land or used in connection therewith, including any elimination or removal required of any person owning or possessing any part of the Land after ownership or possession thereof by the Agent or any Bank, other than the elimination or removal of Hazardous Substances which are (A) first located on, in or under the Land or used in connection therewith after the last date on which the Borrower owned or possessed any part of the Land, or (B) placed on, in or under the Land by the party seeking indemnification. (d) The provisions of this section shall survive Payment of the Note. Section 6.9. Consolidated Adjusted Net Worth. The Borrower will at all times keep and maintain a Consolidated Adjusted Net Worth which is not less than $90,000 and not less than 45% of the total assets of the Borrower and its Subsidiaries. Section 6.10. Fixed Charge Coverage Ratio. The Borrower shall maintain, as of the last day of each quarter of each of its fiscal years, a ratio of (1) Consolidated Pre-Tax Income of the Borrower and its Restricted Subsidiaries for the period of 24 consecutive months ending as of the date of calculation to (b) Fixed Charges of the Borrower and its Restricted Subsidiaries for such 24-month period of not less than 1.25 to 1.00. Section 6.11. Funded Debt. The Borrower shall not permit its Consolidated Funded debt outstanding at any time to exceed 40% of its Consolidated Adjusted Capital at such time. For purposes of this section, there shall not be included as Funded Debt any Short-Term Debt if, during any period of twelve consecutive calendar months immediately preceding the date of determination, there is a period of at least 30 consecutive days during which Short-Term Debt does not exceed $10,000,000; provided that, if no such period exists, the amount by which the lowest average daily principal amount of outstanding Short-Term Debt exceeds $10,000,000 shall be included as Funded Debt. Section 6.12. Limitations on Liens. The Borrower will not, and will not permit any Restricted Subsidiary to, create or incur, or suffer to be incurred or to exist, any Lien on the property or assets of the Borrower or any Restricted Subsidiary, whether now owned or hereafter acquired, or upon any income or profits therefrom, or transfer any property for the purpose of subjecting the same to the payment of obligations in priority to the payment of the general creditors of the Borrower or any Restricted Subsidiary, or acquire or agree to acquire, or permit any Restricted Subsidiary to acquire, any property or assets upon conditional sales agreements or other title retention devices, except the Borrower and the Restricted Subsidiaries may create, incur or permit to exist: (a) Liens for property taxes and assessments or governmental charges or levies, not yet due and payable. (b) Liens of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Borrower or a Restricted Subsidiary shall in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured. (c) Any mechanic's, materialmen's, warehousemen's, supplier's or vendor's lien or right in respect thereof, any deposits or Liens to secure statutory obligations or surety bonds or other Liens of like general nature incurred in the ordinary course of business and not in connection with the borrowing of money, but only if in each case the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate actions or proceedings that will prevent a forfeiture or sale of any property and an adequate book reserve shall have been set aside with respect thereto. (d) Minor exceptions in the nature of easements, rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties which customarily exist on properties of such kind and which do not materially impair their use or value in the operation of the business of the Borrower and its Restricted Subsidiaries. (e) Liens existing as of the date hereof which secure Indebtedness of the Borrower or any Restricted Subsidiary outstanding on such date, but only if the existence thereof has theretofore been disclosed to the Banks in writing. (f) Liens incurred after the date hereof given to secure the payment of the purchase price incurred in connection with the acquisition of tangible personal property or real property, including Liens existing on such property at the time of the acquisition thereof by the Borrower or a Subsidiary, but only if (i) the Lien shall attach solely to the property acquired or purchased, (ii) the aggregate amount remaining unpaid on all Indebtedness secured by Liens on such property, whether or not assumed by the Borrower or a Restricted Subsidiary, shall not exceed an amount equal to 80% of the lesser of the purchase price or fair market value at the time of acquisition of such property (as determined in good faith by the board of directors of the Borrower) and (iii) such Lien is incurred with respect to such property at the time of, or within twelve months after, such acquisition. (g) Liens arising in the ordinary course of business in connection with bankers' acceptances provided to the Borrower under a revolving credit agreement between the Borrower and FUNB, as agent, or any extension, renewal or replacement thereof. (h) Liens securing Indebtedness for borrowed money, but only if the sum of (i) the aggregate principal amount of Indebtedness so secured and (ii) the aggregate unpaid principal amount of all Funded Debt of Restricted Subsidiaries shall not exceed 15% of the Consolidated Adjusted Net Worth. Section 6.13. Mergers, Consolidations and Sales of Assets. (a) The Borrower will not, and will not permit any Restricted Subsidiary to, consolidate with or be a party to a merger with any other corporation or, except in the ordinary course of business or except as provided in subsection (d), sell, lease or otherwise dispose of all or a Substantial Part of the assets of the Borrower or any Restricted Subsidiary; provided that: (i) Any Restricted Subsidiary may merge or consolidate with or into the Borrower or any Wholly- Owned Restricted Subsidiary so long as, in any merger or consolidation involving the Borrower, the Borrower shall be the surviving or continuing corporation and, in any merger or consolidation involving a Wholly-Owned Restricted Subsidiary (but not the Borrower), such Wholly-Owned Restricted Subsidiary shall be the surviving or continuing corporation. (ii) The Borrower may consolidate or merge with any other corporation if (A) the surviving or continuing corporation shall be a corporation organized under the laws of the United States or any state thereof, (B) the surviving or continuing corporation shall, if not the Borrower, assume in writing the due and punctual payment of the principal of and interest on the Note and the due observance and performance of each of the covenants and other terms of this Agreement to be observed or performed by the Borrower, and (C) at the time of such consolidation or merger and after giving effect thereto, no Event of Default, nor any other event or condition which, with the giving of notice of the lapse of time or both, would constitute an Event of Default, shall have occurred and be continuing. (iii) A corporation may consolidate with or merge into a Wholly-Owned Restricted Subsidiary if (A) the surviving or continuing corporation shall be such Wholly-Owned Restricted Subsidiary, (B) at the time of such consolidation or merger and after giving effect thereto, no Event of Default, nor any other event or condition which, with the giving of notice or the lapse of time or both, would constitute an Event of Default, shall have occurred and be continuing, and (C) after giving effect to such consolidation or merger, the Borrower could still incur additional liens by reason of Section 6.12(h). (iv) Any Restricted Subsidiary may sell, lease or otherwise dispose of all or substantially all of its assets to the Borrower or any Wholly-Owned Restricted Subsidiary. (b) The Borrower will not permit any Restricted Subsidiary to issue or sell any shares of stock of any class (including as stock for the purposes of this section, any warrants, rights or options to purchase or otherwise acquire stock or other securities exchangeable for or convertible into stock) of such Restricted Subsidiary to any person other than the Borrower or a Wholly-Owned Restricted Subsidiary, except for the purpose of qualifying directors. (c) The Borrower will not sell, transfer or otherwise dispose of any shares of stock in any Restricted Subsidiary (except to qualify directors) or any Indebtedness of any Restricted Subsidiary, and will not permit any Restricted Subsidiary to sell, transfer or otherwise dispose of (except to the Borrower or a Wholly-Owned Restricted Subsidiary) any shares of stock or any Indebtedness of any other Restricted Subsidiary. (d) The Borrower will not, and will not permit any Restricted Subsidiary to, sell, lease, transfer or otherwise dispose of all or a Substantial Part of the assets of the Borrower or any of its Restricted Subsidiaries, other than in the ordinary course of business, in one or a series of transactions to any person during any period of twelve consecutive months, unless (A) the Borrower (i) invests the net proceeds of such Disposition during such twelve-month period in Like Assets and/or (ii) applies the Excess Proceeds to the prepayment of the Note and (B) after giving effect to such Disposition, no Event of Default, nor any event or condition which, with the giving of notice or the lapse of time or both, would constitute an Event of Default, shall exist. Section 6.14. Restricted Payments. The Borrower will not: (a) declare or pay any dividends, either in cash or property, on any shares of its capital stock of any class (except dividends or other distributions payable solely in shares of capital stock of the Borrower); (b) directly or indirectly, or through any Restricted Subsidiary, purchase, redeem, retire or otherwise acquire for value any shares of its capital stock of any class or any warrants, rights or options to purchase or acquire any shares of its capital stock (other than in exchange for or out of the net cash proceeds from the substantially concurrent issuance or sale of other shares of capital stock of the Borrower subsequent to the Closing Date); (c) make any other payment or distribution, either directly or indirectly or through any Restricted Subsidiary, in respect of its capital stock; or (d) make or retain, or permit any Restricted Subsidiary to make or retain, any Investment other than a Qualified Investment; (all such declarations, payments, purchases, redemptions, retirements, acquisitions, distributions and Investments, as described in (a) through (d) above, being herein collectively called "Restricted Payments") if, after giving effect thereto, (i) the aggregate amount of Restricted Payments made during the period from and after March 30, 1991 to and including the date of the making of the Restricted Payment in question would exceed the sum of (A) 10% of Consolidated Adjusted Net Worth as of the date of the making of such Restricted Payment, plus (B) 50% of Consolidated Net Income (less 100% of any net deficit) subsequent to March 30, 1991, plus (C) the Additional Dividend Amount, or (ii) an Event of Default, or an event or condition which, with the giving of notice or the lapse of time or both, would constitute an Event of Default, would exist. The Borrower will not declare any dividend which constitutes a Restricted Payment payable more than 90 days after its date of declaration. Any dividend which complies with the provisions of this section on the date of its declaration shall be deemed to comply on its date of payment, but only if any intervening event giving rise to non-compliance is not the result of a Restricted Payment. Section 6.15. Restricted Subsidiaries. Any Subsidiary which is or becomes a Restricted Subsidiary shall remain a Restricted Subsidiary for all purposes of this Agreement unless (a) the board of directors of the Borrower has designated the Subsidiary an Unrestricted Subsidiary, (b) after giving effect to the designation of such Subsidiary as an Unrestricted Subsidiary, no Event of Default, nor any event or condition which, with the giving of notice or the lapse of time or both, would constitute an Event of Default, would exist, and (c) such Subsidiary shall have no continuing investment, whether in the nature of capital stock, Indebtedness or otherwise, in the Borrower or any Restricted Subsidiary. ARTICLE VII Agency Section 7.1. Appointment of Agent. Each Bank hereby irrevocably appoints and authorizes the Agent to take such action as agent on behalf of such Bank and to exercise such powers under the Financing Instruments and the Intercreditor Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto. The duties of the Agent shall be mechanical and administrative in nature, and the Agent shall not by reason of this Agreement be a trustee or fiduciary for any Bank. The Agent shall have no duties or responsibilities except those expressly set forth under the Financing Instruments and the Intercreditor Agreement. As to any matters not expressly provided for by the Financing Instruments or the Intercreditor Agreement, the Agent may act or refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Banks, and such instructions shall be binding upon all Banks; provided that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to the Financing Instruments or the Intercreditor Agreement or applicable law. The Agent may resign and be replaced as provided in the Intercreditor Agreement. The Banks, or the successor Agent on their behalf, shall promptly give the Borrower notice of any such resignation or replacement. The Agent shall not be required to take any action hereunder or under the Intercreditor Agreement, other than any required distribution of moneys to the Banks, until it is indemnified by the Banks to its satisfaction against any costs or liability which it might incur by reason of so acting. ARTICLE VIII Guaranty Section 8.1. Guaranty of Obligations. The Guarantors hereby jointly and severally guarantee to the Agent, for the benefit of the Banks, the prompt payment, when due, of all obligations of the Borrower under the Financing Instruments (the "Obligations") and agree that upon default by the Borrower in the payment when due of any Obligation, the Guarantors will promptly pay the same. The guaranty obligation of the Guarantors contained in this section shall be a continuing, absolute and unconditional guaranty. The foregoing is a guaranty of payment, and not of collection. Section 8.2. Waivers. (a) The Guarantors hereby waive notice of the creation, incurrence or extension of any Obligations now existing or hereafter arising. (b) The Guarantors hereby waive protest, all demands and all notices including, but not limited to, any notices in connection with, related to or associated with, whether by law or agreement, (i) the failure (whether partial or otherwise) by the Borrower or by any other person to timely, properly or otherwise pay or perform any Obligation or (ii) the creation, preservation, perfection or enforcement or lack thereof, or any failure by any person in respect thereof, regarding any Security. Section 8.3. Forbearance and Modifications. The Guarantors hereby agree that, without further notice or consent, the same hereby being waived, and without affecting the Guarantors' liabilities hereunder, the Agent or any Bank may at any time, in the exercise of its sole discretion, take or refrain from taking any lawful action, including without limitation changing any terms of all or any part of any Obligations, granting any extensions, modifications or renewals of any Obligations, effecting any releases, compromises or settlements or making any other indulgences with respect to any Obligations, entering into any agreement concerning the use of any or all of the Security or changing the terms of any agreement concerning any or all of the Security, consenting to the substitution, exchange or release of all or any part of the Security or any person liable to the Agent or any Bank with respect thereto, realizing upon all or any part of the Security in any lawful manner, or forbearing from realizing upon all or any part of the Security. Section 8.4. Continuing Liability. (a) The Guarantors shall not be released from any obligations or liability under and shall not have any rights or recourse against the Agent or any Bank, for any reason relating to (i) any default with respect to any Security existing when the Security is accepted by the Agent or any Bank or at any time thereafter, (ii) any failure to convey, create or perfect a valid Lien in any Security, (iii) any invalidity or defect in any Security, (iv) the existence of any equities, defenses or claims in favor of others with respect to any Security, (v) failure to correctly estimate the value of any Security or the change in value of any Security, (vi) any deterioration, waste or loss to any Security, and/or (vii) any rights and consents granted, waivers made or other actions taken or not taken by the Agent or any Bank under Section 8.2(b). THE GUARANTORS HEREBY WAIVE ALL SURETYSHIP AND OTHER SIMILAR DEFENSES, INCLUDING BUT NOT LIMITED TO THE RIGHT TO REQUIRE THE AGENT OR ANY BANK TO PROCEED TO ENFORCE THE OBLIGATIONS AGAINST ANY PERSON BEFORE OR CONTEMPORANEOUSLY WITH THE ENFORCEMENT OF THIS GUARANTY. (b) The Guarantors' obligations and liabilities under the Guaranty shall not be in any way affected or terminated if any other person liable, primarily or secondarily, directly or indirectly, for all or any part of any Obligations shall cease to exist, dissolve, wind up its business, suspend business, make any assignment for the benefit of creditors generally, become insolvent or admit in writing its insolvency, generally not pay its debts as they become due, or become a debtor in a bankruptcy case or if a receiver, trustee or custodian is appointed for such other person's property or is authorized to take charge of any of its property to enforce a Lien against it or for purposes of general administration for the benefit of its creditors, or if such other person should petition or apply to any tribunal for any receiver for or any trustee of it or its estate or for relief under any bankruptcy, arrangement, reorganization, readjustment of debt, receivership, dissolution or liquidation proceedings or under any law relating to the relief of debtors, or have any such action commenced against it, with or without its consent. Section 8.5. Subrogation. The Guarantors hereby waive any right of subrogation with respect to the Obligations or any Security and agree not to enter into any agreement with the Borrower which grants to either of the Guarantors any right waived hereby or any right to recover from the Borrower any amount paid by either Guarantor hereunder. Section 8.6. Subordination. The Guarantors hereby (a) subordinate to the Obligations any present and future debts, obligations or liabilities, whether contingent or otherwise, of the Borrower to any Guarantor, alone or with any other person, (b) subordinate any Liens, whether now existing or hereafter arising, securing payment of such debts, obligations or liabilities, and (c) agree that no Guarantor shall ask for, demand, sue for, take or receive any part of such debts, obligations and liabilities while payment of any of the Obligations is in default. If any payment is made to any Guarantor on account of such debts, obligations or liabilities in violation of the terms hereof, such Guarantor shall forthwith pay all such amounts to the Agent to be credited and applied, in the Agent's sole discretion (but Pro Rata), to the Obligations then outstanding, whether matured or unmatured, contingent or otherwise. Section 8.7. Further Guaranties. Any subsequent guaranty to or for the benefit of Agent or any Bank by any person, including any Guarantor, shall not supersede or terminate the Guaranty, but shall be an additional guaranty unless otherwise stated therein. If any Guarantor has given a previous guaranty to the Agent or any Bank, the Guaranty shall be in addition to such previous guaranty. ARTICLE IX Events of Default and Remedies Section 9.1. Event of Default. Each of the following shall be an Event of Default: (a) Failure of the Borrower to make any payment of principal of or interest on the Note when due and the continuation of such failure for five days. (b) Failure of any Obligor to observe or perform any of its other covenants, conditions or agreements hereunder for a period of 30 days after notice (unless the Borrower and the Agent shall agree in writing to an extension of such time prior to its expiration) specifying such failure and requesting that it be remedied, given by the Agent to the Borrower, or in the case of any such default that can be cured but cannot with due diligence be cured within such 30-day period, failure of such Obligor to proceed promptly to cure the same and thereafter prosecute the curing of the same with due diligence. (c) (i) Failure of any Obligor to pay generally its debts as they become due, (ii) commencement by any Obligor of a voluntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, (iii) consent by any Obligor to the appointment of a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official for such Obligor or any substantial part of the property of such Obligor, or to the taking possession by any such official of any substantial part of the property of such Obligor, or (iv) making by any Obligor of any assignment for the benefit of creditors generally. (d) The entry of any decree or order for (i) relief by a court having jurisdiction over any Obligor or the property of any Obligor in an involuntary case under the federal bankruptcy laws, as now or thereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, or (ii) appointment of a receiver, liquidator, assignee, trustee, custodian, sequestrator or similar official for any Obligor or any substantial part of the property of any Obligor. (e) Failure of any Obligor within 90 days after the commencement of any proceeding against such Obligor under the federal bankruptcy laws or any other applicable federal or state bankruptcy, insolvency or similar law, to have such proceedings dismissed or stayed. (f) Reasonable determination by the Agent or any Bank that any warranty, representation or other statement by or on behalf of any Obligor contained in any Financing Instrument or any financial statement or other information furnished in connection with the issuance or sale of the Note was false or misleading in any material respect at the time it was made or delivered. (g) The acceleration of any indebtedness of any Obligor to any person, in a principal amount of $1,000,000 or more, by reason of a default (in payment or otherwise) with respect thereto. Section 9.2. Remedies on Default. Upon the occurrence and continuation of an Event of Default, the Agent may: (a) Declare all payments hereunder and under the Note to be due and payable on a date which is not earlier than 30 days after notice of such declaration is given to the Borrower by the Agent, whereupon the same shall become due and payable on such date. (b) Take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due hereunder or under the Note or to enforce observance or performance of any covenant, condition or agreement of the Obligors under the Financing Instruments. The Agent shall give notice to the Borrower of the exercise of any of the rights or remedies under this section (i) in writing in the manner provided in Section 11.7 and (ii) by telephone or telegram, provided that failure to give such notice by telephone or telegram shall not affect the validity of the exercise of any right or remedy under this section. Any balance of the moneys collected pursuant to action taken under this section remaining after payment of all costs and expenses of collection and amounts due hereunder shall be paid to the Banks and applied Pro Rata toward the making of Required Payments then due and payable, provided that after Payment of the Note and payment of all other sums required by applicable law any such balance shall be paid to the Borrower. Section 9.3. No Remedy Exclusive. No remedy herein conferred upon or reserved to the Agent is intended to be exclusive of any other remedy, and every remedy shall be cumulative and in addition to every other remedy herein or now or hereafter existing at law, in equity or by statute. No delay or failure to exercise any right or power accruing upon an Event of Default shall impair any such right or power or shall be construed to be a waiver thereof, and any such right or power may be exercised from time to time and as often as may be deemed expedient. Section 9.4. Counsel Fees and Other Expenses. The Borrower shall on demand pay to the Agent the reasonable counsel fees and other reasonable expenses incurred by the Agent or any Bank in the collection of payments hereunder or the enforcement of any other obligation of the Borrower upon an Event of Default. Section 9.5. No Additional Waiver Implied by One Waiver. If any party or its assignee waives a default by any other party under any covenant, condition or agreement herein, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. ARTICLE X Prepayment Section 10.1. Option to Prepay. The Note may be prepaid at the option of the Borrower according to its terms and subject to any requirements contained therein. Such prepayment of the Note shall be deemed prepayment of the Borrower's obligations hereunder in the same amount. Prepayment of the Note in full shall discharge the Borrower from its obligations under this Agreement and the Note (other than obligations which survive Payment of the Note), but only if such prepayment shall constitute Payment of the Note. Section 10.2. Mandatory Prepayment. If the Banks shall determine that, due to one or more changes in ownership or voting of the stock of the Borrower and/or one or more other changes relating to such stock, effective control of the Borrower is possessed by one or more stockholders who do not now possess such effective control, the Banks may elect that the Note be prepaid in full. The Borrower shall prepay the Note in full within 180 days after receiving notice of such election from the Banks or from the Agent on behalf of the Banks. ARTICLE XI Miscellaneous Section 11.1. Term of Agreement. This Agreement shall be effective upon execution and delivery hereof. Subject to earlier satisfaction upon prepayment of all of the Borrower's obligations hereunder pursuant to Section 10.1 and the making in full of all other Required Payments due and payable at the date of such prepayment and subject to any provisions hereof which survive Payment of the Note, the Obligors' obligations hereunder shall expire on the date provided in the Note for the final payment of principal thereon, or if all Required Payments have not been made on such date, when all Required Payments have been made. Section 11.2. Successors and Assigns. This Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. No assignment by any Obligor shall relieve such Obligor of its obligations hereunder. Section 11.3. Jurisdiction and Venue. Any judicial proceeding to enforce performance of any obligation of any Obligor under the Financing Instruments may be brought before any court of competent jurisdiction located in the City of Harrisonburg, Virginia or in the United Stated District Court for the Western District of Virginia. If any such proceeding is brought before any such court, no Obligor shall assert any defense relating to the jurisdiction of such court or the venue of such proceedings. The Obligors agree that service of process with respect to any such proceeding may be made upon any employee or officer of any Obligor who may be located in the Commonwealth of Virginia at the time of such service and that any such service shall be deemed to be valid service upon any Obligor named as a party in such proceeding. Section 11.4. Severability. If any provision of this Agreement shall be held invalid by any court of competent jurisdiction, such holding shall not invalidate any other provision hereof. Section 11.5. Applicable Law; Entire Understanding. This Agreement shall be governed by the applicable laws of the Commonwealth of Virginia. The Financing Instruments express the entire understanding and all agreements between the parties and may not be modified except in a writing signed by the parties. No Financing Instrument may be modified before Payment of the Note without the consent of the Banks. Section 11.6. Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original, and all of which together shall constitute but one and the same instrument. Section 11.7. Notices. Except as may otherwise be provided herein, all demands, notices, approvals, consents, requests and other communications hereunder and under the other Financing Instruments shall be in writing and shall be delivered or given by certified mail, postage prepaid, addressed as follows: (a) If to the Borrower, at: For U.S. Mail: For Courier: P. O. Box 7000 800 Co-op Drive Broadway, VA 22815-7000 Timberville, VA 22853 Attn: Treasurer Attn: Treasurer (b) If to either Guarantor, at: For U.S. Mail: For Courier: c/o WLR Foods, Inc. c/o WLR Foods, Inc. P. O. Box 7000 800 Co-op Drive Broadway, VA 22815-7000 Timberville, VA 22853 Attn: Treasurer Attn: Treasurer (c) If to any Bank, at: c/o First Union National Bank of Virginia 141 East Market Street Harrisonburg, Virginia 22801 Attn: Commercial Banking; and (d) If to the Agent, at: 141 East Market Street Harrisonburg, Virginia 22801 Attn: Commercial Banking. Any Obligor, any Bank and the Agent may, by notice given hereunder, designate any further or different addresses to which subsequent demands, notices, approvals, consents, requests and other communications shall be sent or persons to whose attention the same shall be directed. Section 11.8. Other Agreements. To the extent that the execution and delivery of any Financing Instrument by any Obligor or the performance of its obligations thereunder, would constitute a violation of or default under any other agreement to which any Bank and such Obligor are parties, such other agreement is hereby amended (to the extent such amendment can be effected without the consent of persons who are not parties to this Agreement) to permit such execution and delivery or such performance, as the case may be, and any default under such agreement resulting from such execution and delivery or such performance is hereby waived. IN WITNESS WHEREOF, the Banks, the Agent and the Obligors have caused this Agreement to be executed in their respective names, all as of the date first above written. FIRST UNION NATIONAL BANK OF VIRGINIA By_________________________________ Vice President CORESTATES BANK, N.A. By_________________________________ Vice President CRESTAR BANK By_________________________________ Senior Vice President FIRST UNION NATIONAL BANK OF VIRGINIA, as Agent By_________________________________ Vice President WLR FOODS, INC. By_________________________________ Treasurer WAMPLER-LONGACRE, INC. By_________________________________ Treasurer CASSCO ICE & COLD STORAGE, INC. By_________________________________ Assistant Treasurer EXHIBIT 1 No. _________ REQUEST FOR BORROWING First Union National Bank of Virginia, ________________, 19___ as Agent 141 East Market Street Harrisonburg, Virginia 22801 Attn: Commercial Banking Dear Sirs: I hereby request an Advance, as defined in the Loan Agreement dated as of June 1, 1994 (the "Agreement") among WLR Foods, Inc., First Union National Bank of Virginia, Corestates Bank, N.A., Crestar Bank, Wampler-Longacre, Inc. and Cassco Ice & Cold Storage, Inc., in the amount of $_______________ to be paid to ___________________________________________ _____________________________________________________________________________ ___________________________________________________________________________ on ___________________, 19_____, for ____________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ I hereby certify that (a) the representations of the Obligors (as defined in the Agreement) set forth in Section 2.1 of the Agreement are true and correct as if made on the date hereof, and (b) the making of the Advance requested hereby will not, with notice or lapse of time or both, constitute an Event of Default (as defined in the Agreement). ____________________________________________ Authorized Representative 23798 EX-4.6 3 EXHIBIT 4.6 PROMISSORY NOTE Exhibit 4.6 PROMISSORY NOTE WLR FOODS, INC. $25,000,000 Maximum July 20, 1994 WLR Foods, Inc. (the "Borrower"), for value received, hereby promises to pay to First Union National Bank of Virginia, Corestates Bank, N.A., also doing business as Philadelphia National Bank, and Crestar Bank (collectively, the "Banks"), or assigns, in lawful money of the United States of America, a principal amount equal to the aggregate amount of Advances, as defined in and made under the Agreement (as hereinafter defined), but not to exceed $25,000,000.00, together with interest hereon from the date hereof until payment and, to the extent permitted by law, interest on any overdue installments of such interest, at a per annum rate of interest equal to LIBOR (as hereinafter defined), plus 1.0%. Interest hereon shall be calculated on the basis of a year of 360 days and the actual number of days elapsed. Interest on the unpaid principal hereof shall be payable on the first day of each month, beginning on the first day of the month following the month in which occurs the date of this Note. Principal of this Note shall be payable in installments of $308,641.00 the first day of each month, beginning on November 1, 1994. If not sooner paid, the entire remaining principal balance hereof shall be due and payable on July 1, 2001, together with all interest then accrued. If any principal payment hereon provided for above shall exceed the outstanding principal balance hereof at the date such payment is scheduled to be made, the amount of such payment shall be reduced to the amount of such outstanding principal balance. The amount by which such payment is reduced pursuant to the preceding sentence shall be added to the amount of the next principal payment due hereon, but such next principal payment (as so increased) shall be subject to the provisions of the preceding sentence. In no event shall the aggregate principal payments required to be made hereon exceed the aggregate amount of Advances. As used in this Note, "LIBOR", as in effect on any day, shall mean the London Interbank Offered Rates for one-month deposits as shown in The Wall Street Journal on such day or, if not so shown on such day, as most recently shown in The Wall Street Journal. If the London Interbank Offered Rates should cease to be shown in The Wall Street Journal, LIBOR shall thereafter be determined on the basis of the London Interbank Offered Rates as shown in such comparable source as the Agent (as defined in the Agreement) may select. For purposes of calculating interest on this Note, LIBOR as in effect on the first day of a month shall be deemed to be in effect for the entirety of such month. All payments of principal of and interest on this Note shall be made to the Agent, for the benefit of the Banks, in immediately available funds, at the principal office of the Agent in Harrisonburg, Virginia, or at such other place as the Agent may in writing designate. This Note is subject to prepayment on the first day of any month, in whole or in part, upon 30 days' prior written notice, by payment of the outstanding principal amount hereof to be prepaid. This Note is issued pursuant to a Loan Agreement dated as of June 1, 1994 among the Banks, the Borrower, Wampler-Longacre, Inc. and Cassco Ice & Cold Storage, Inc. (the "Agreement") to evidence the Borrower's obligation to repay the Loan (as defined in the Agreement) and is entitled to the benefits and subject to the conditions thereof, including the provisions of Section 5.3 thereof that the Borrower's obligations thereunder and hereunder shall be unconditional. All of the terms, conditions and provisions of the Agreement are, by this reference thereto, incorporated herein as a part of this Note. In case an Event of Default (as defined in the Agreement) shall occur and be continuing, the principal of and interest on this Note may be declared immediately due and payable as provided in the Agreement. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed in its name as of the date first above written. WLR FOODS, INC. By_______________________________________ Treasurer 23841 EX-13 4 EXHIBIT 13 ANNUAL REPORT EXHIBIT 13.1 WLR FOODS, INC. AND SUBSIDIARIES FIVE YEAR FINANCIAL HIGHLIGHTS Dollars in thousands, except per share data
July 2, July 3, June 27, June 29, June 30, Fiscal year ended: 1994 1993 1992 1991 1990 OPERATIONS Net sales $727,270 $616,702 $514,465 $502,238 $494,156 Cost of sales 632,620 535,014 454,331 434,509 415,803 -------- -------- --------- ------- -------- Gross profit 94,650 81,688 60,134 67,729 78,353 Selling, general and administrative expenses 63,606 55,732 48,191 50,019 49,595 -------- -------- ------- ------- ------ Operating income 31,044 25,956 11,943 17,710 28,758 Interest expense 4,989 3,816 2,755 928 925 Other expense (income) (431) (567) (251) (453) (491) ------- -------- ------- ------- ------- Total other 4,558 3,249 2,504 475 434 ------- -------- ------- ------- -------- Earnings before income taxes and minority interest 26,486 22,707 9,439 17,235 28,324 Income tax expense 9,897 8,057 3,518 6,521 10,895 Minority interest 38 43 25 33 34 ------- -------- ------- ------- -------- Net earnings 16,551 14,607 5,896 10,681 17,395 Less preferred stock dividends - 1,389 982 - - ------ -------- ------- ------- ------- Net earnings available to common shareholders $16,551 $13,218 $4,914 $10,681 $17,395 ======= ======= ====== ======= ======= PER COMMON SHARE Net earnings per share (primary) $1.51 $1.42 $0.52 $1.02 $1.67 Net earnings per share (fully diluted) 1.51 1.40 0.52 1.02 1.67 Dividends declared (excluding Cassco pooling) 0.32 0.32 0.32 0.32 0.29 Book value 14.18 12.99 9.66 10.99 10.29 Year-end stock price 25.50 17.00 14.50 18.00 18.50 Common shares outstanding (in thousands): Average for the year 10,967 10,444 9,518 10,521 10,430 At year end 11,009 10,951 8,479 10,521 10,521 ======= ======= ======= ======= ====== FINANCIAL POSITION AT END OF YEAR Working capital $69,989 $57,509 $40,337 $49,532 $46,039 Property, plant and equipment, net 139,854 140,540 113,017 88,807 71,414 Total assets 283,051 265,626 207,736 175,329 157,763 Long-term debt 46,368 52,253 38,148 18,678 6,402 Preferred shareholders' equity - - 29,507 - - Common shareholders' equity 156,157 142,255 81,881 115,625 108,258 ======= ======== ======= ======== ======== 2 ANALYTICAL & OTHER INFORMATION Current ratio (compared to 1) 2.02 1.92 1.80 2.42 2.20 Total debt/total capitalization 28.4% 33.5% 32.0% 16.1% 8.5% Return on beginning total equity 11.6 13.1 5.1 9.9 19.0 Capital expenditures $19,186 $31,766 $36,107 $29,471 $20,360 Depreciation expense 21,333 18,115 14,041 11,544 9,932 Amortization expense 520 445 168 - - Interest expense 4,989 3,816 2,755 928 925 Dividends declared: Common stock 3,513 3,124 2,854 3,314 2,948 Preferred stock - 1,389 982 - - Market capitalization of the Company's common stock at year end 280,738 186,168 122,942 189,378 194,638 ======== ======== ======= ========= ======== Fully diluted shares In March 1993, the Company repurchased all the preferred stock issued in January 1992.
EXHIBIT 13.2 Management's Discussion and Analysis WLR Foods, Inc. and Subsidiaries General Information WLR Foods, Inc. again posted record sales during its fiscal year ended July 2, 1994. Net earnings increased 13.3% to $16.6 million, raising net earnings to $1.51 per share. Several factors contributed to this success. The Company consolidated its chicken and turkey subsidiaries into one subsidiary, Wampler-Longacre, Inc., and streamlined its management group to take advantage of the strengths of each of its operating units. Pounds sold increased 15.3% in fiscal 1994, reflecting the completed expansion of the Moorefield, West Virginia chicken processing complex, which achieved projected production levels in January 1994. A full year of production at the New Oxford, Pennsylvania turkey facility, acquired by WLR Foods in fiscal 1993, also helped boost sales volumes. Cassco Ice & Cold Storage, Inc. expanded its operations with a $4.4 million refrigerated warehouse in Harrisonburg and increased ice production tonnage 20% by adding capacity at its Norfolk facility. The warehouse became operational in mid-September 1994 while the ice expansion was completed in time to meet the summer's seasonal high ice business. WLR Foods continues to concentrate on the production and marketing of value-added product lines which generate higher, more consistent profit margins to insulate WLR Foods against cyclical industry swings. WLR Foods experienced a challenging year in fiscal 1994 when, in January 1994, Tyson Foods commenced a hostile takeover attempt of the company. The offer was repeatedly rejected by the Board of Directors and the shareholders of WLR Foods, and on August 5, 1994, Tyson Foods terminated its tender offer. WLR Foods spent $3.1 million on its hostile takeover defense in fiscal 1994. On August 29, 1994, the Company acquired Cuddy Farms, Inc.- USA Food Division for $43.0 million in cash and 1,183,333 shares of common stock. The acquisition will be accounted for as a purchase, with the operations being absorbed into Wampler-Longacre, Inc. The cash was provided by a draw on the line of credit and the seven year loan provided by the banks. It is now estimated the purchase price will be less than $73.8 million as originally reported. No additional shares will be issued. If the purchase price is less than $71.4 million, Cuddy will pay WLR Foods the difference in cash. WLR Foods adopted SFAS No. 109 "Accounting for Income Taxes" in fiscal 1994. The Company used the prospective method of adoption of the statement. There was no cumulative effect adjustment necessary on the consolidated statement of earnings as a result of the adoption of the new statement. The consolidated balance sheet as of July 2, 1994 reflects the adoption of SFAS No. 109. WLR Foods will adopt SFAS No. 112 "Employers Accounting for Postemployment Benefits," and SFAS No. 115 "Accounting for Certain Investments in Debt Securities," in fiscal 1995. SFAS No. 116 "Accounting for Contributions Received and Contributions Made," will be adopted by the end of fiscal 1996. Management believes there will not be a material impact on WLR Foods financial statements as a result of the adoption of any or all of these statements. For the periods indicated, this table sets forth selected information from WLR Foods Consolidated Statements of Earnings expressed as a percentage of net sales Operations as a Percentage of Net Sales
Fiscal Year ------------------------------------ 1994 1993 1992 -------- ------ ------ Net sales 100.0% 100.0% 100.0% Cost of sales 87.0 86.8 88.3 -------- ------ ------- Gross profit 13.0 13.2 11.7 Selling, general and administrative expenses 8.7 9.0 9.4 -------- ------ ------- Operating profit 4.3 4.2 2.3 Interest expense .7 .6 .5 Other,net (.1) (.1) --- -------- ------- ------- Earnings before income taxes and minority interest 3.7 3.7 1.8 Income tax expense and minority interest 1.4 1.3 .7 -------- ------- ------- Net earnings 2.3% 2.4% 1.1% ======== ======= =======
The next table shows dollar and percentage changes in the components of operating results over the past three fiscal years. Changes in Results of Operations
Fiscal Year Fiscal Year 1994 vs. 1993 1993 vs.1992 ---------------------- ---------------------- $Increase % $Increase % In millions, except per share data (Decrease) Change (Decrease) Change ----------- ------- --------- ------ Net sales $110.6 17.9% $102.2 19.9% Cost of sales 97.6 18.2 80.6 17.8 ------------ ------- ---------- ------- Gross profit 13.0 15.9 21.6 35.8 Selling, general and administrative expenses 4.8 8.6 7.6 15.8 Hostile takeover defense costs 3.1 --- --- --- ------------ ------- ---------- ------ Operating profit 5.1 19.6 14.0 117.3 Interest expense 1.2 30.7 1.1 38.5 Other, net (.1) (24.0) .4 125.9 ------------ ------- ---------- ------ Earnings before income taxes and minority interest 3.8 16.6 13.3 140.6 Income tax expense and minority interest 1.9 22.7 4.6 128.6 ------------ ------- ---------- ------ Net earnings $ 1.9 13.3 $ 8.7 147.7 Preferred dividends (1.4) (100.0) .4 41.4 ------------ ------- ---------- ------ Earnings available to common shareholders $ 3.3 25.2% $ 8.3 169.0% ============ ======= ========== ====== Earnings per share (fully diluted) $ 0.11 7.9% $ 0.88 169.2% ============ ======= =========== ========
Results of Operations Fiscal 1994 net sales were $727.3 million, up 17.9% from $616.7 million in fiscal 1993. Sales pounds increased 15.3% over fiscal 1993 levels. Chicken sales pounds were up 14.3% due to bringing the expanded Moorefield chicken complex production to full capacity. The New Oxford turkey facility, which WLR Foods acquired during fiscal 1993, together with internal turkey expansion, increased turkey sales pounds by 19.0% over the prior year. Cassco's revenues increased 34.2% over fiscal 1993 reflecting a full year of revenues from the two ice acquisitions in fiscal 1993. Fiscal year 1993 net sales had been up 19.9% compared to fiscal 1992, a result of volume increases of chicken and turkey sold. Fiscal 1994 average quoted commodity prices for chicken and turkey increased 5.4% and 5.8%, respectively, over prior year average prices. This trend continued from fiscal 1993, with its 5% increase in average quoted commodity chicken prices and near level average quoted commodity turkey prices, compared to fiscal 1992. Although certain average quoted chicken prices have dropped modestly since the end of fiscal 1994, the average quoted commodity turkey prices are moving seasonally higher, and above last year at this time, as the holiday retail whole turkey season approaches. Fiscal 1994 cost of sales increased 18.2%, or $97.6 million to $632.6 million, reflecting increased pounds sold and higher feed costs. Cost of sales increased as a percentage of net sales to 87% for fiscal 1994 compared to 86.8% in fiscal 1993. The 1994 increase includes $16 million higher feed costs compared to fiscal 1993. Per pound processing costs continued to improve throughout fiscal 1994 as higher volumes were processed and greater efficiencies were realized in operations. Fiscal 1993 cost of sales increased 17.8% to $535 million. This increase reflected a 19.4% jump in sales pounds compared to the prior year and start-up costs related to the Moorefield chicken complex of $2.6 million were incurred during fiscal 1993. Next to labor, grain is the next largest cost of producing and processing chickens and turkeys. WLR Foods has several purchasing mechanisms available to control the cost of grain. These include cash purchasing, forward pricing, grain options, and hedging with futures contracts. During fiscal 1994, the Company only used cash purchasing and forward pricing to purchase grain. Management has established policies to reduce the risk associated with positions in grain needed in the future. The policies limit the amount of forward priced grain allowed, not to exceed 50% of future needs beyond 180 days, thereby reducing economic risk in the event of a downturn in the grain markets. At the close of fiscal 1994, WLR Foods had approximately 50% of its soybean meal needs forward priced through August 1994 at prices below $205 per ton delivered. Management views the use of these purchasing methods as beneficial to WLR Foods although grain at a fixed price may create a limited downside risk. At the present time, indications are that the grain harvest for 1994 is expected to be markedly better than 1993, which should equate to lower grain prices in fiscal 1995. Disease in birds is another risk when raising poultry, but WLR Foods uses strict biosecurity measures throughout its operations to minimize this risk and produce high quality products for its customers. Currently, management is not aware of any serious poultry disease outbreaks in the areas where the company grows poultry, except North Carolina, where the entire state is experiencing some early mortality in turkey flocks. This is not expected to have a material adverse effect on the company's operations. Gross margin remained relatively stable, decreasing a modest 0.2% from 13.2% in fiscal 1993, to 13.0% in fiscal 1994 -- a result of the higher grain costs incurred in fiscal 1994. Gross margin is expected to improve as grain prices moderate and the company continues to improve its operating efficiencies. Selling, general and administrative expenses increased $7.9 million, of which $4.8 million was due to normal business operations. Additionally, the Company incurred $3.1 million in advisory fees for its defense of Tyson Foods' attempted takeover of the Company. Management anticipates additional advisory fees will be incurred in fiscal 1995, but they will not be significant to the total general and administrative expenses. Selling and advertising expenses were up $1.1 million or 6.6% while sales volumes increased 15.3%. Delivery costs rose $4.5 million as a result of higher volumes sold. General and administrative expenses decreased $0.8 million, the result of consolidating the poultry subsidiaries. On a year-to-year basis, selling, general and administrative expenses decreased from 9.0% in fiscal 1993 to 8.7% in fiscal 1994. This would have been approximately 8.3% if the defense costs had not been incurred. In fiscal 1993, WLR Foods selling, general and administrative expenses increased $7.6 million as a result of greater sales volumes, increased management bonuses and increased profit sharing contributions over fiscal 1992. Interest expense rose to nearly $5.0 million in fiscal 1994, up $1.2 million from fiscal 1993, due to higher interest rates and increased borrowings during the period. In fiscal 1993, interest expense was up $1.1 million with higher borrowing to fund expansion programs. Interest capitalized decreased to $0.1 million in fiscal 1994 from $0.8 million in fiscal 1993, as the major expansion projects began production. The effective tax rates for fiscal 1994, 1993 and 1992 were 37.4%, 35.5% and 37.3%, respectively. The increase in taxes in fiscal 1994 is due to higher federal statutory rates and lower tax credits available to the Company. Management expects effective tax rates in the future to be in the 37% to 38% range for years of normal operating conditions. Liquidity and Financial Condition WLR Foods working capital position improved substantially in fiscal 1994. Working capital was $70.0 million compared to $57.5 million, and current ratios were 2.0-to-1 compared to 1.9-to-1 for fiscal 1994 and fiscal 1993, respectively. Working capital was generated from earnings and depreciation and was reduced by capital spending and debt service. The farm price inventory method was applied to all live inventories with the consolidation of the poultry subsidiaries. This provided the Company with a one time tax deferral of approximately $10.0 million, and helped to offset increases in accounts receivable and inventories. Accounts receivable increased $11.2 million primarily as the result of higher sales. Live inventories were up $5.1 million due to higher feed costs and increased production. Other current assets increased $1.0 million due to the overpayment of current taxes payable. The book value of WLR Foods common stock increased to $14.18 per share, up $1.19 per share from the book value reported at the end of fiscal 1993. This increase is reflective of the earnings of fiscal 1994 decreased by dividends declared. As of July 2, 1994 total debt-to-total capitalization was 28.5%, compared to 33.5% at July 3, 1993. This ratio reflects payment of long-term debt and earnings in fiscal 1994. This level is low for public poultry companies and is expected to move back into the 40% to 43% range with the acquisition of Cuddy Farms -- USA Food Division. WLR Foods has $25.6 million remaining on its $35.0 million revolving line of credit. In June 1994, WLR Foods entered into an agreement with its participating banks to extend the current line of credit at the same terms through March 31, 1995. Management expects to replace and increase the line of credit facility to meet future needs of WLR Foods. Indications suggest the expanded facility will have similar or favorable terms to the current facility. Capital Resources Capital resources are critical to the growth and strength of WLR Foods. In fiscal 1994, WLR Foods spent $19.2 million on capital projects. The major spending included $3.8 million of the $4.4 million budgeted on a Cassco cold storage warehouse facility. Additionally, $1.6 million of $2.0 million budgeted was spent to improve WLR Foods information system. The system will be completed in fiscal 1995. Other expenditures included normal replacement and upgrades of operations. During fiscal 1994, the Company took advantage of favorable lease rates available in the marketplace and leased approximately $0.7 million of rolling stock, plant equipment and office equipment. For fiscal 1995, capital spending is budgeted at $23 million, including $8.0 million to be spent on renovations and enhancements of Cuddy operations. In addition, $3.7 million will be leased. Except for the Cuddy expenditures, spending will be for the normal replacement and upgrades of existing equipment. The capital spending will be funded through earnings and depreciation. Depreciation for fiscal 1995 is forecast at $24.5 million, including $3.5 million for Cuddy's operations. Management is committed to grow WLR Foods profitably, enhancing value for its shareholders. Management expects fiscal 1995 to continue to provide both profit and growth opportunities for WLR Foods. EXHIBIT 13.3 WLR FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
Dollars in thousands, except per share data Fiscal years ended July 2, 1994, July 3, 1993 and June 27, 1992 1994 1993 1992 Net sales $727,270 $616,702 $514,465 Cost of sales (Note 12) 632,620 535,014 454,331 ------- ------- ------- Gross profit 94,650 81,688 60,134 Selling, general and administrative expenses 63,606 55,732 48,191 ------ ------- ------ Operating income 31,044 25,956 11,943 Other expense: Interest expense (Note 4) 4,989 3,816 2,755 Other income, net (431) (567) (251) ------ ------ ----- Other expense 4,558 3,249 2,504 ------ ------ ----- Earnings before income taxes and minority interest 26,486 22,707 9,439 Income tax expense (Note 8) 9,897 8,057 3,518 Minority interest in net earnings of consolidated subsidiary 38 43 25 ------ ------ ----- NET EARNINGS 16,551 14,607 5,896 Less preferred stock dividends -- 1,389 982 -------- ------- ------ NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS $16,551 $13,218 $4,914 ======= ======= ======= NET EARNINGS PER COMMON SHARE (PRIMARY) $1.51 $1.42 $0.52 ======= ======== ======= NET EARNINGS PER COMMON SHARE (FULLY DILUTED) $1.51 $1.40 $0.52 ======= ======== ======= See accompanying Notes to Consolidated Financial Statements.
WLR FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
Dollars in thousands July 2, 1994 and July 3, 1993 1994 1993 ASSETS Current Assets Cash and cash equivalents $771 $680 Accounts receivable, less allowance for doubtful accounts of $360 and $363 52,305 41,090 Inventories (Note 3) 83,047 76,728 Other current assets 2,270 1,309 ------- ------- Total current assets 138,393 119,807 Investments 954 720 Property, plant and equipment, net (Note 4) 139,854 140,540 Other assets 3,850 4,559 -------- ------- TOTAL ASSETS $283,051 $265,626 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable to banks (Note 5) $9,400 $12,900 Current maturities of long-term debt (Note 6) 6,275 6,381 Excess checks over bank balances 8,511 7,213 Trade accounts payable 20,937 18,451 Accrued expenses 16,103 15,626 Federal and state income taxes (Note 8) -- 790 Other current liabilities 881 876 Deferred taxes (Note 8) 6,297 61 ------ ------ Total current liabilities 68,404 62,298 Long-term debt, excluding current maturities (Note 6) 46,368 52,253 Deferred income taxes (Note 8) 9,813 6,190 Minority interest in consolidated subsidiary 475 441 Other liabilities and deferred credits 1,834 2,189 ------ ------ Total liabilities 126,894 123,371 Shareholders' equity (Notes 9 and 10): Common stock, no par value. Authorized 100,000,000 shares; issued and outstanding: 11,009,328 and 10,951,069 shares. 61,416 60,552 Additional paid-in capital 3,253 3,253 Retained earnings 91,488 78,450 ------ ------- Total shareholders' equity 156,157 142,255 Commitments (Notes 7, 11 and 14) ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $283,051 $265,626 ======== ======== See accompanying Notes to Consolidated Financial Statements.
WLR FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Dollars and shares in thousands, except per share data
Additional Fiscal years ended July 2, 1994, Preferred Stock Common Stock Paid-In Retained July 3, 1993 and June 27, 1992. Shares Amount Shares Amount Capital Earnings Total BALANCE AT JUNE 29, 1991 -- -- 10,521 $10,489 $4,111 $101,025 $115,625 Net earnings 5,896 5,896 Dividends declared: Preferred dividends - $33.29 per share (982) (982) Common dividends - $0.32 per share (2,854) (2,854) Issuance of preferred stock in exchange for common stock 29.507 $29,507 (1,666) (2,188) (858) (26,725) (264) Repurchase of common stock (529) (8,004) (8,004) Issuance of common stock for acquisition of business 153 1,971 1,971 ------- ------ ------ ------ ----- ------ ------- BALANCE AT JUNE 27, 1992 29.507 29,507 8,479 10,272 3,253 68,356 111,388 Net earnings 14,607 14,607 Dividends declared: Preferred dividends - $47.08 per share (1,389) (1,389) Common dividends - $0.32 per share (3,124) (3,124) Issuance of common stock for acquisition of businesses 448 8,668 8,668 Issuance of common stock through public offering 2,000 41,365 41,365 Repurchase of preferred stock (29.507) (29,507) (29,507) Common stock issued under Stock Option Plan including tax benefit of $167 18 130 130 Other common stock issued 6 117 117 ------- -------- ----- ------ ------ ------ -------- BALANCE AT JULY 3, 1993 -- -- 10,951 60,552 3,253 78,450 142,255 Net earnings 16,551 16,551 Dividends declared: Common dividends - $0.32 per share (3,513) (3,513) Common stock issued under Stock Option Plan including tax benefit of $158 40 450 450 Other common stock issued 18 414 414 ------ ------ ------ ------- ------- ------- -------- BALANCE AT JULY 2, 1994 -- -- 11,009 $61,416 $3,253 $91,488 $156,157 ====== ====== ====== ======== ======= ======= ======== See accompanying Notes to Consolidated Financial Statements.
WLR FOODS. INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands Fiscal years ended July 2, 1994, July 3, 1993 and June 27, 1992 1994 1993 1992 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $16,551 $14,607 $5,896 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 21,333 18,115 14,041 (Gain) loss on sales of property, plant and equipment (12) (17) 121 Deferred income taxes 8,449 1,100 (98) Other, net 520 445 133 Change in operating assets and liabilities net of acquired businesses: Increase in accounts receivable (11,215) (2,380) (682) Increase in inventories (6,319) (13,138) (6,915) (Increase) decrease in other current assets (961) 601 720 Increase (decrease) in accounts payable 2,486 509 (318) Increase (decrease) in accrued expenses and other (350) 99 3,266 ------- ------ ------ Net cash provided by operating activities 30,482 19,941 16,164 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (19,186) (31,766) (36,107) Acquisition of businesses (Note 2) -- (2,061) (450) Proceeds from sales of property, plant and equipment 140 132 156 Additions to other assets (44) (1,199) (2,025) Minority interest in net earnings of consolidated subsidiary, net of dividends 34 39 22 ------- ------ ------- Net cash used in investing activities (19,056) (34,855) (38,404) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in notes payable to banks (3,500) (6,171) 10,698 Issuance of long-term debt -- 15,193 20,350 Principal payments on long-term debt (6,489) (962) (916) Deferred debt financing costs -- -- (121) Issuance of common stock 864 41,612 -- Repurchase of common stock -- -- (8,269) Repurchase of preferred stock -- (29,507) -- Increase in excess checks over bank balances 1,298 366 2,825 Dividends Paid (3,508) (5,298) (3,017) ------- ------- ------ Net cash provided by (used in) financing activities (11,335) 15,233 21,550 ------- ------ ------ Increase (decrease) in cash and cash equivalents 91 319 (690) Cash and cash equivalents at beginning of fiscal year 680 361 1,051 ------- ------ ------- Cash and cash equivalents at end of fiscal year $771 $680 $361 ======= ====== ======= Supplemental cash flow information: Cash paid for: Interest $4,808 $4,237 $2,803 Income taxes 2,039 7,958 1,847 ===== ===== ===== Non-cash financing activities: In fiscal 1993: The Company issued 117,796 shares of WLR Foods, Inc. common stock valued at $2,554,000 and $733,000 in notes payable to purchase of the assets of two ice manufacturing and disbribution companies. (Note 2.) The Company issued 330,472 shares of WLR Foods, Inc. common stock valued at $6,114,000 and a five year promissory note payable for $842,000 as consideration for the acquisition of Round Hill Foods, Inc. (Note 2.) In fiscal 1992: The Company issued 29,507 shares of Series L Convertible Preferred Stock for 1,666,149 shares of WLR Foods, Inc. common stock. The Company issued 153,125 shares of WLR Foods, Inc. common stock valued at $1,971,000 to purchase property, plant and equipment of Southern Ice Company, Inc. See accompanying Notes to Consolidated Financial Statements.
WLR FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION Organization WLR Foods, Inc. (the Company) is primarily engaged in fully integrated turkey and chicken production, processing, further processing and marketing. WLR Foods sells products through a variety of selected national and international retail, foodservice and institutional markets. Fiscal year The Company's fiscal year ends on the Saturday closest to June 30. Fiscal years 1994, 1993 and 1992 ended on July 2, 1994, July 3, 1993 and June 27, 1992, respectively, and included 52 weeks in fiscal 1994 and fiscal 1992, and 53 weeks in fiscal 1993. Principles of Consolidation and Presentation The accompanying consolidated financial statements include the accounts of WLR Foods and all of its wholly-owned and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Cash and Cash Equivalents For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories Inventories of feed, grain, eggs, packaging supplies, processed poultry and meat products are stated at the lower of cost or market as determined by the first-in, first-out valuation method. Live poultry and breeder flocks consist of poultry raised for slaughter and breeders. Poultry raised for slaughter are stated at the lower of average cost or market. Breeders are stated at average cost less accumulated amortization. The costs of breeders are accumulated during their development stage and then amortized into the cost of the eggs produced over the egg production cycle of the breeders, using the straight-line method. The Company has four methods of purchasing grain; cash purchasing, forward pricing,grain options and hedging with futures contracts. Each purchasing method creates varying degrees of risk for WLR Foods. As of July 2, 1994, WLR Foods had various forward contractual agreements for the purchase of soybean meal at fixed prices. The difference between the forward price commitment and the current cash price is immaterial. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. The costs of maintenance and repairs are charged to operations, while costs associated with renewals, improvements and major replacements are capitalized. Income Taxes Effective July 4, 1993, WLR Foods adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). SFAS No. 109 mandates a change from the deferred method of accounting for income taxes of APB Opinion 11 to the asset and liability method. Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income for the years in which those temporary differences are expected to be recovered or settled. The Company adopted SFAS No. 109 using the cumulative effect of a change in accounting principle. The adoption of the new statement did not have a material effect on the consolidated statement of earnings or the consolidated balance sheet. Additionally, the adoption of SFAS No. 109 necessitated the reclassification of certain amounts which had previously been recorded net of tax in accordance with APB Opinion 11. The following accounts were increased (decreased) as a result of the adoption of SFAS No. 109. Property, plant and equipment $1,589 Long-term debt 498 Current income taxes payable (857) Current deferred income taxes payable 413 Long-term deferred income taxes 1,535 These reclassifications are only reported to reconcile the Consolidated Statement of Cash Flows for the fiscal year ended July 2, 1994. Net Earnings Per Common Share Net earnings per common share are based on the weighted average number of common shares and common share equivalents outstanding during the fiscal years (10,967,145 shares, 9,322,152 shares and 9,518,220 shares in 1994, 1993 and 1992, respectively). Net earnings are reduced by the preferred stock dividend to arrive at the net earnings available to common shareholders. Fully diluted earnings per share assume the full conversion of the Series L Convertible Preferred Stock during the periods they were outstanding. Fully diluted earnings per share were based on the fully diluted weighted average common shares and common share equivalents of 10,444,348 for fiscal 1993. The impact of the convertible preferred stock was antidilutive for fiscal 1992, therefore, the amounts reported for primary and fully diluted earnings per share are the same. Reclassifications Certain 1993 and 1992 amounts have been reclassified to conform with fiscal 1994 presentations. 2. Business Acquisitions In May 1993, the Company acquired assets of two ice manufacturing and distribution companies for $806,000 cash, $415,200 five-year notes and $317,700 10-year notes, and 117,796 shares of WLR Foods common stock valued at $2.6 million. These two operations have been integrated into the Cassco Ice subsidiary. The acquisitions were accounted for as a purchase, and accordingly, the fiscal 1993 statements included herein, reflect the assets acquired at fair value and the results of operations of the acquired companies from the date of acquisition. On November 27, 1992, the Company acquired Round Hill Foods, Inc. and affiliated companies (collectively referred to as Round Hill Foods). Round Hill Foods is located in New Oxford, Pennsylvania and is engaged in turkey production, processing, and marketing operations. Its products are sold through a variety of selected national and international retail, foodservice and industrial markets. The Company issued 330,472 shares of WLR Foods, common stock, valued at $6.1 million, paid $1 million in cash and issued $842,000 of promissory notes payable over five years. In addition, the Company assumed $11 million of debt. The transaction was accounted for as a purchase and accordingly, all accounts and transactions of Round Hill Foods are included in the Company's consolidated financial statements as of the acquisition date. As of November 27, 1992, Round Hill Foods had the following assets and liabilities (in thousands): Accounts receivable $6,518 Inventories 7,199 Property, plant and equipment (net)10,501 ------ Total assets acquired 24,218 Consideration paid Cash and costs (1,176) Promissory notes payable (842) Stock issued (6,114) ------- Total liabilities assumed $16,086 ======= The following table shows the pro forma results of the Company as if Round Hill Foods had been acquired at the beginning of the respective fiscal years. This information is presented only for comparative information and is not indicative of the results which may have occurred if the transaction had been consummated at the beginning of the periods presented. Pro forma - Unaudited Dollars in thousands, Fiscal year ended except per share data July 3, 1993 June 27, 1992 Sales $640,925 $575,475 Net income 13,253 5,385 Earnings per share $1.25 $0.45 3. Inventories A summary of inventories at July 2, 1994 and July 3, 1993 follows: Dollars in thousands 1994 1993 Live poultry and breeder flocks $39,719 $34,588 Processed poultry and meat products 22,969 23,057 Packaging supplies, parts and other 11,824 12,439 Feed, grain and eggs 8,535 6,644 ------- ------ Total inventories $83,047 $76,728 ======= ======= 4. Property, Plant and Equipment The Company's investment in property, plant and equipment at July 2, 1994 and July 3, 1993 was as follows: Dollars in thousands 1994 1993 Land and improvements $14,260 $11,942 Buildings and improvements 82,514 79,128 Machinery and equipment 141,289 133,401 Transportation equipment 24,710 22,363 Construction in progress 6,000 2,452 ------- ------ 268,773 249,286 Less accumulated depreciation 128,919 108,746 ------- ------ Property, plant and equipment, net $139,854 $140,540 ======= ======= The Company capitalized interest costs with respect to certain major construction projects of $82,000, $800,000 and $502,000 in fiscal years 1994, 1993 and 1992, respectively. 5. Notes Payable to Banks Notes payable to banks at July 2, 1994 and July 3, 1993 were as follows: Dollars in thousands 1994 1993 Notes payable under lines of credit based on variable interest rates $9,400 $12,900 ===== ====== Following is a summary of such borrowings during the past three fiscal years: Dollars in thousands 1994 1993 1992 Weighted average interest rate at end 5.52% 4.63% 4.68% fiscal year Weighted average interest rate during 4.65 4.44 5.42 fiscal year Average amount of month-end borrowings $11,567 $14,733 $8,916 Maximum amount of borrowings outstanding at any month end 15,900 27,100 16,100 At July 2, 1994, the Company had available unused loan commitments to borrow additional amounts aggregating approximately $25.6 million. The Company extended its current revolving line of credit for nine months. The extension allows the Company to borrow funds with terms comparable to the existing facility. 6. Long-Term Debt Long-term debt at July 2, 1994 and July 3, 1993 consisted of the following obligations: Dollars in thousands 1994 1993 Fixed rate notes $27,000 $30,000 Variable rate notes 17,750 20,000 Other notes 7,893 8,634 ------- ------ Total long-term debt 52,643 58,634 Less current maturities of long-term debt 6,275 6,381 ------- ------- Long-term debt, excluding current maturities $46,368 $52,253 ======= ====== The Company had no agreements to maintain compensating balances during fiscal 1994, 1993, or 1992. At July 2, 1994 and July 3, 1993, prime rate was 7.25% and 6.0%, respectively. The fixed rate notes are unsecured and have a coupon rate of 9.41% with maturity in 2001. Annual principal repayments of $3.0 million began in fiscal 1994, with a final balloon payment of $9.0 million due in 2001. The variable rate notes, are unsecured and include an option for the Company to fix the rate at a later date. Interest rates were 5.94% at July 2, 1994 and 4.43% at July 3, 1993. Annual principal repayments of $2.25 million began in fiscal 1994, with final maturity in 2001. The final payment is a balloon payment of $4.25 million. Other notes include mortgage notes, industrial development revenue bonds, and other secured and unsecured notes. No individual note exceeds $1.1 million at July 2, 1994 and $1.4 million at July 3, 1993. Maturities range from 1994 to 2004 with coupon rates varying between 4.0% and 10.0%. The fair value of the fixed rate notes is estimated at $29.3 million based on quoted market prices for similar issues at July 2, 1994. The carrying value of all other debt approximates fair value at July 2, 1994. Covenants related to the debt agreements include requirements for working capital, debt-to-equity, earnings coverage of fixed charges and disposition of fixed assets. Required annual principal repayments of long-term debt are as follows: Dollars in thousands - - - ------------------------------------ Fiscal 1995 $6,275 Fiscal 1996 6,293 Fiscal 1997 6,268 Fiscal 1998 6,306 Fiscal 1999 6,164 Subsequent to year-end the Company entered into a $25.0 million seven-year variable rate note agreement with its banks. The loan will be at the 30-day LIBOR rate plus 1% and will be repriced as of the first of each calendar month. The Company has a 90 day-period to draw the funds, which can be used for general corporate purposes. 7. Employee Benefits The Company maintains a Profit Sharing and Salary Savings Plan that is available to substantially all employees who meet certain age and service requirements. Most participants may elect to make contributions of up to 15% of their salary. For each employee dollar contributed (limited to the first 4% of an employee's compensation), the Company is required to contribute a matching amount of 50 cents. The Company can also make additional contributions at its discretion. Total Company contributions under this plan were approximately $2.1 million, $1.5 million, and $1.0 million, for fiscal 1994, 1993, and 1992, respectively. 8. Income Taxes Effective July 4, 1993, WLR Foods, Inc. adopted SFAS No. 109 "Accounting for Income Taxes." See Note 1 for a discussion of the effects of the accounting change. The provisions for income taxes from operations were as follows for fiscal years 1994, 1993 and 1992: Dollars in thousands 1994 1993 1992 Current: Federal $948 $5,985 $2,836 State 500 972 780 ---- ---- ------- 1,448 6,957 3,616 Deferred: Federal 7,477 846 (40) State 972 254 (58) ---- ---- ----- 8,449 1,100 (98) ----- ------ ------ Total tax provision $9,897 $8,057 $3,518 ====== ======= ====== The provisions for income taxes differ from the amounts resulting from applying the federal statutory tax rates (35% for fiscal year 1994 and 34% for fiscal years 1993 and 1992) to earnings before income taxes and minority interest as follows for fiscal years 1994, 1993 and 1992: Dollars in thousands 1994 1993 1992 Taxes computed using federal statutory $9,270 $7,720 $3,209 tax rates State income tax expense, net of federal 957 809 476 tax benefit Other, net (330) (472) (167) ----- ----- ----- Total tax provision $9,897 $8,057 $3,518 ===== ===== ===== Effective tax rate 37.4% 35.5% 37.3% The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and deferred tax liabilities at July 2, 1994 are listed below. (Dollars in thousands) 1994 Deferred tax liabilities: Inventories, principally due to live inventories accounted for on the farm price method for tax purposes ($11,901) Plant and equipment, principally due to differences in depreciation and capitalized interest (10,343) Investments in subsidiary companies, principally due to undistributed net income of the subsidiary (319) Other (136) ------- Gross deferred tax liabilities (22,699) Deferred tax assets: Insurance accruals, principally due to the timing of payments vs. the recording of expense $1,599 Tax net operating loss carryforwards 1,428 Deferred compensation, principally due to accrual for financial reporting purposes 1,217 Alternative minimum tax credit 948 Compensated absences, principally due to accrual for financial reporting purposes 794 Accounts receivable, principally due to allowance for doubtful accounts 140 Other 463 ------ Gross deferred tax assets 6,589 Valuation allowance on deferred tax assets - ------ Net deferred tax liability ($16,110) ======== At the adoption of SFAS No. 109 management determined a valuation allowance was unnecessary, and during fiscal 1994 no allowance has been recorded. Based on the Company's historical earnings, future expectations of taxable income, the reversing of gross deferred tax liabilities and potential net operating loss carrybacks, management anticipates the Company will realize the gross deferred tax assets. The sources of deferred income taxes and their related tax effects are as follows for fiscal years 1993 and 1992: Dollars in thousands 1993 1992 Excess of tax over financial statement depreciation $936 $581 Accrued expenses deductible in different periods for financial reporting and tax purposes (586) (583) Difference between financial statement and tax bases of inventories 773 (147) Other, net (23) 51 ------ ----- Deferred tax provision (benefit) $1,100 ($98) ====== ===== At July 2, 1994, the Company has tax net operating loss carryforwards of $1.4 million which are available to offset future federal taxable income, if any through 2009. Additionally, the Company has alternative minimum tax carryforwards of $0.9 million which are available to reduce future federal regular income taxes, if any, over an indefinite period. 9. Shareholders' Equity In February 1994, the Board of Directors approved the adoption of the Shareholder Protection Rights Plan (the Plan) wherein on February 14, 1994 one right attaches to and trades with each share of common stock. Each right entitles the registered holder to purchase from the Company at an exercise price of $68, the number of shares of common stock or participating preferred stock having a market value of twice the exercise price. Such participating preferred stock is designed to have economic and voting terms similar to those of one share of common stock. Rights will separate from the common stock and become exercisable following the earlier of 1) the date a person or group acquires 15% or more of the outstanding stock, or 2) the tenth business day (or such later date the Board may decide) after any person or group commences a tender offer that would result in such person or group holding a total of 15% or more of the common stock. Additionally, rights owned by the acquiring person or group would automatically become void. If a person or group acquires between 15% and 50% of the outstanding common stock, the Board may, in lieu of allowing rights to be exercised, require each outstanding right to be exchanged for one share of common stock or participating preferred stock. A provision in the Plan allows for rights holders to acquire stock of the acquiring person or group, in the event a change of control of the Company has occurred. The rights are redeemable by the Company at $0.01 per right prior to becoming exercisable and expire ten years from issuance. 10. Stock Option Plan The Company's Stock Option Plan was adopted by the Board of Directors in accordance with the Long-Term Incentive Plan which was ratified by the shareholders of the Company on November 1, 1988. The Plan provides for the granting of incentive or nonqualified common stock options. The option price under the Plan shall not be less than the fair market value of the common shares as of the date of the grant. The options vest over a three year period and are exercisable at varying dates not to exceed ten years from the grant. The changes in the outstanding common shares under option for fiscal 1994, 1993, and 1992 are listed in the following table: Common shares Option under option price Outstanding at June 29, 1991 410,000 $12.33 to $18.50 Granted in fiscal 1992 119,250 $17.88 ------ --------------- Outstanding at June 27, 1992 529,250 $12.33 to $18.50 Cancelled or expired (79,500) $12.33 to $18.50 Exercised (47,250) $12.33 Granted in fiscal 1993 104,250 $22.00 ------- --------------- Outstanding at July 3, 1993 506,750 $12.33 to $22.00 Cancelled or expired (2,000) $17.88 Exercised (109,750) $12.33 to $18.50 Granted in fiscal 1994 100,250 $30.00 --------- --------------- Outstanding at July 2, 1994 495,250 $17.88 to $30.00 ======== =============== As of July 2, 1994, 291,084 options are exercisable. 11. Leases The Company has entered into various operating lease agreements for machinery and equipment. The leases are noncancellable and expire on various dates through 2000. Total rent expense was approximately $1.4 million, $1.2 million and $1.1 million for fiscal 1994, 1993, and 1992, respectively. The following schedule presents the future minimum rental payments required under the operating leases that have initial or remaining noncancellable lease terms in excess of one year as of July 2, 1994: Dollars in thousands Fiscal 1995 $940 Fiscal 1996 388 Fiscal 1997 310 Fiscal 1998 211 Fiscal 1999 114 Fiscal 2000 and thereafter 136 ------ Total minimum leases payments $2,099 ===== 12. Related Party Transactions Certain directors of WLR Foods are contract growers of live poultry to the Company. In addition, a WLR Foods director is a director/officer of a company which supplies fuel and related products to certain locations of the Company. A second director provided consulting services to WLR Foods during fiscal 1994 and fiscal 1993. Transactions with these related parties during the past three fiscal years are as follows: Purchases from related Dollars in thousands parties Fiscal 1994 $1,522 Fiscal 1993 1,921 Fiscal 1992 3,782 In management's opinion, all related party transactions are conducted under normal business conditions, with no preferential treatment given to related parties. 13. Selected Quarterly Financial Data (Unaudited) The unaudited summary of quarterly results for fiscal 1994 and 1993 follows: Dollars in thousands, except per share data Fiscal year ended July 2, 1994 First Second Third Fourth Net sales $179,028 $182,315 $171,090 $194,837 Operating income 7,293 7,901 3,171 12,679 Net earnings 3,784 4,133 1,303 7,331 Per share data: Net earnings per common share $0.35 $0.37 $0.12 $0.67 Dividends declared per common share 0.08 0.08 0.08 0.08 Market price (bid)-high 20.00 19.25 31.38 31.75 -low 16.75 17.25 27.50 25.75 Fiscal year ended July 3, 1993 Net sales $140,748 $146,619 $149,575 $179,760 Operating income 7,290 5,602 2,881 10,183 Net earnings 4,183 3,019 1,269 6,136 Net earnings available to common shareholders 3,667 2,503 912 6,136 Per share data: Net earnings per common share (primary) $0.43 $0.29 $0.10 $0.56 Net earnings per common share (fully diluted) 0.41 0.29 0.10 0.56 Dividends declared per common share 0.08 0.08 0.08 0.08 Market price (bid)-high 18.00 21.88 25.25 22.25 -low 14.00 16.25 20.25 16.75 14. Subsequent event On August 29, 1994 WLR Foods acquired substantially all of the net assets of the foods division of Cuddy Farms, Inc., for cash of $43.0 million and 1,183,333 shares of common stock. The acquisition will be accounted for as a purchase and will be recorded at fair market value. The acquisition agreement provides for certain post-closing adjustments based on audit procedures, which may result in adjustments to the purchase price. Pursuant to certain rights of this shareholder's lenders, WLR Foods may be required to purchase the issued shares at a fixed price of $15 per share. As a result, approximately $17.7 million will be reflected in the Company's consolidated balance sheet as temporary equity reserved for repurchase of the shares. EXHIBIT 13.4 Independent Auditors' Report The Board of Directors and Shareholders WLR Foods, Inc.: We have audited the accompanying consolidated balance sheets of WLR Foods, Inc. and subsidiaries as of July 2, 1994 and July 3, 1993, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the fiscal years in the three-year period ended July 2, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of WLR Foods, Inc. and subsidiaries as of July 2, 1994 and July 3, 1993, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended July 2, 1994, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Richmond, Virginia August 17, 1994, except Note 14 which is as of August 29, 1994 EX-21 5 EXHIBIT 21 SUBSIDIARIES EXHIBIT 21 Subsidiary State of Incorporation Wampler-Longacre, Inc. Virginia P. O. Box 7275 Broadway, VA 22815 Cassco Ice & Cold Storage, Inc. Virginia 75 W. Bruce Street Harrisonburg, VA 22801 May Supply Company, Inc. Virginia P. O. Box 347 Harrisonburg, VA 22801 23668 EX-22 6 EXHIBIT 22 PROXY REPORT Exhibit 22 SECURITY OWNERSHIP OF CERTAIN PERSONS The following table sets forth the number and percentage of shares of Company common stock held as of August 31, 1994 by the only persons who, to the knowledge of the Company, beneficially own 5% or more of the Company's outstanding common stock. Name and Address Number Beneficially Owned Percent of Class Crestar Bank NA 1,183,333 9.49% 919 E. Main Street Richmond, VA 23219,Trustee for Cuddy Farms, Inc. 1 Based on 12,195,886 shares outstanding as of August 31, 1994 plus 271,782 shares which members of management have the option to purchase within 60 days of August 31, 1994. 2 Shares held for the benefit of Cuddy Farms, Inc. pursuant to a voting trust dated August 29, 1994, under the terms of which the Trustee, Crestar Bank NA, is obligated to vote all shares in accordance with the recommendation of the Board. In the absence of a recommendation by the Board as to any proposal, the trustee will vote as directed by Cuddy Farms, Inc. The Voting Trust, subject to certain exceptions for early termination, terminates on August 29, 1998. The following table sets forth the number and percentage of shares of Company common stock held as of August 31, 1994 by each of the Company's directors, each executive officer of the Company who was required to be named in the Cash Compensation Table, and by all directors and executive officers as a group. Name Number Beneficially Owned Percent of Class George E. Bryan 304,046 2.4% Charles L. Campbell 8,352 * Stephen W. Custer 62,102 * Calvin G. Germroth 12,020 * William H. Groseclose 2,132 * Henry L. Holler 25,740 * J. Craig Hott 70,047 * James L. Keeler 149,175 1.2% Kenneth D. Marshall 46,337 * Herman D. Mason 197,612 1.6% James L. Mason 90,060 * V. Eugene Misner 63,433>F13> * Charles W. Wampler, Jr. 348,000 2.8% William D. Wampler 600,495 4.8% All directors and executive 1,868,109 15.0% officers as a group (consisting of 17 persons, including those named above) _____________________________ * Denotes percent ownership not exceeding 1% of the class of common stock. [FN] Based on 12,195,886 shares outstanding as of August 31, 1994 plus 271,782 shares which members of management have the option to purchase within 60 days of August 31, 1994. Includes 105,264 shares owned directly and 198,782 shares owned by his wife. Mr. Bryan disclaims beneficial interest in the shares held by his wife. All shares owned directly. Includes 33,418 shares owned directly, 9,328 shares owned by his wife, 17,923 shares held as custodian for Mr. Custer's three children, and 1,433 shares owned by his daughter who lives at Mr. Custer's home. Mr. Custer disclaims beneficial interest in the shares owned by his wife and daughter or held by him as custodian. All shares owned directly and through a self-directed retirement account. All shares owned directly. Includes 2,365 shares owned jointly with his wife, 875 shares owned by his wife through her self-directed retirement account, and 22,500 shares which Mr. Holler has the right to purchase within 60 days of August 31, 1994 through the exercise of options. Includes 69,847 shares owned by E. E. Hott, Inc., of which Mr. Hott is an officer and director, and 200 shares held by his wife as custodian for Mr. Hott's two children. Mr. Hott disclaims beneficial interest in the shares held by his wife as custodian. Includes 32,312 shares owned directly and through self-directed retirement accounts, 15,613 shares owned by his wife directly and through her self-directed retirement account, and 101,250 shares which Mr. Keeler has the right to purchase within 60 days of August 31, 1994 through the exercise of options. Mr. Keeler disclaims beneficial interest in the shares owned by his wife. <10> Includes 495 shares owned directly, 23,342 shares owned jointly with his wife, and 22,500 shares which Mr. Marshall has the right to purchase within 60 days of August 31, 1994 through the exercise of options. Includes 162,464 shares owned directly and 35,148 shares held as trustee for the Louise T. Mason Trust. Mr. Mason disclaims beneficial interest in the shares held by the Trust. Includes 29,785 shares owned directly and through self-directed retirement accounts, 13,039 shares owned jointly with his wife, 685 shares owned by his wife through her self-directed retirement account, 3,051 shares held as custodian for Mr. Mason's two children, and 43,500 shares which Mr. Mason has the right to purchase within 60 days of August 31, 1994 through the exercise of options. Mr. Mason disclaims beneficial ownership in the shares owned by his wife or held by him as custodian. Includes 840 shares owned through his self-directed retirement account, 17,998 shares owned jointly with his wife, 870 shares owned by his wife through her self-directed retirement account, 225 shares owned by his son who lives in Dr. Misner's home, and 43,500 shares which Dr. Misner has the right to purchase within 60 days of August 31, 1994 through the exercise of options. Dr. Misner disclaims beneficial ownership in the shares owned by his wife and son. Includes 121,350 shares owned directly and as general partner of Wampler Land, 45,310 shares owned by his wife, 129,646 shares held as trustee of the Charles W. Wampler, Sr. Family Trust, and 51,694 shares held as trustee of the Charles W. Wampler, Sr. Charitable Annuity Trust. Mr. Wampler disclaims beneficial interest in the shares owned by his wife or held by the Trusts. Includes 266,260 shares owned directly and as general partner of Wampler Land, 134,102 shares owned by his wife, 18,793 shares owned by May Meadows Farms, Inc., of which Mr. Wampler is an officer and director, 129,646 shares held as trustee of the Charles W. Wampler, Sr. Family Trust, and 51,694 shares held as trustee of the Charles W. Wampler, Sr. Charitable Annuity Trust. Mr. Wampler disclaims beneficial interest in the shares owned by his wife or held by the Trusts. This number does not reflect the sum of all of the preceding number of shares beneficially owned by all of the above-named directors and officers since 1,373 shares held by Charles W. Wampler, Jr. and William D. Wampler as general partners of Wampler Land, an 181,340 shares held as trustees by both Charles W. Wampler, Jr. and William D. Wampler have been taken into account in determining the number of shares beneficially owned by each of Charles W. Wampler, Jr. and William D. Wampler, individually. In addition, this amount includes the 271,782 shares which the group has the right to purchase within 60 days of August 31, 1994 through the exercise of options. INFORMATION CONCERNING DIRECTORS AND NOMINEES Biographical summaries for the four director nominees and the seven directors continuing in office appear in the following chart.
Name and Position Director Principal Occupation with the Company Age Since During the Last Five Years Director Nominees CLASS A DIRECTORS (to serve until the 1997 annual meeting of shareholders) J. Craig Hott 41 1988 Vice President of Hott's Farming, Inc. and Hott's Ag-Services, Inc. Peter A.W. Green 57 1994 President and Chief Executive Officer of Cuddy International Corporation since November, 1993; previously, President and Chief Executive Officer of Alcatel Canada Wire, Inc. Herman D. Mason 73 1984 Retired; previously, Chief Executive Officer Vice Chairman of the Company until 1988 of the Board Charles W. Wampler, Jr. 78 1984 Poultry and livestock farmer Chairman of the Board
Directors Continuing in Office CLASS B DIRECTORS (to serve until the 1995 annual meeting of shareholders) Stephen W. Custer 52 1984 President of Custer Associates, Inc. (consulting firm) Calvin G. Germroth 70 1988 Broiler producer James L. Keeler 59 1988 Chief Executive Officer of the Company since President February 1988
CLASS C DIRECTORS (to serve until the 1996 annual meeting of shareholders) George E. Bryan 72 1984 Poultry and livestock farmer Charles L. Campbell 46 1988 Commissioner of Revenue for Page County, Virginia; broiler producer William H. Groseclose 63 1993 Chairman of Harrisonburg Regional Board and Winchester Regional Board of First Union Bank; previously Chief Executive Officer of Shenandoah Valley region of Dominion Bank William D. Wampler 66 1984 Poultry and livestock farmer
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has always been fortunate to have directors who are actively involved in, and knowledgeable about, the Company's businesses. As a result, the Company has relationships with certain directors and their families, which relationships are on the same bases and terms as transactions with unrelated parties. The following table identifies (i) amounts in excess of $60,000 paid by the Company to each of the directors, members of their immediate family, and entities related to the directors who were contract growers with the Company during fiscal year ended July 2, 1994, and (ii) amounts paid to directors who were contract growers if such payments exceeded five percent of the director's gross revenues for such activity during fiscal year ended July 2, 1994. All such transactions were on the same bases and terms as transactions with unrelated parties. Total Amount Received from the Directors Company and its Subsidiaries Charles L. Campbell $ 86,035 Timothy Campbell, his son $ 63,546 Calvin G. Germroth $ 38,594 J. Craig Hott Hott's Farming, Inc. $287,755 James L. Keeler Gregory Keeler, his son $129,265 Charles W. Wampler, Jr. Sunny Creek $170,203 C. W. Wampler & Sons $232,820 William D. Wampler May Meadows Farm, Inc. $205,340 C. W. Wampler & Sons $232,820 During fiscal year ended July 2, 1994, the Company purchased, either directly or through third-party suppliers, $270,164 of fuel oil and propane from Franklin Oil Co., Inc., of which J. Craig Hott is a director and minority shareholder. The prices and terms were comparable to those of other oil companiesin the area. During fiscal year ended July 2, 1994, the Company paid $24,566 to Custer Associates, Inc., a consulting firm owned by Stephen W. Custer, which assisted with the Company-wide quality control program. The terms of this arrangement were competitive and fully disclosed to the Board. Charles W. Wampler, Jr. and William D. Wampler are brothers and are uncles of Stephen W. Custer. REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE Compensation Philosophy The Executive Compensation Committee of the Company's Board of Directors determines the annual salary, bonus and other benefits of the Company's Chief Executive Officer and makes decisions relating to stock option awards to executive officers and other key personnel pursuant to the Company's Long TermIncentive Plan. The Company's overall policy regarding executive compensation is to provide competitive compensation packages that attract and retain qualified executives and to reward its executives for financial and operating results, annual and long-term, which enhance the value of shareholders' investment inthe Company. Base Salary The base salary component of executive compensation within the Company reflects the first goal stated above of attracting and retaining qualified executives. Based on available figures, the Company executives' base salaries are competitive compared to other companies within Virginia and the industry. Periodic increases in base salary are based on evaluations of past and current performance, competitive market conditions and Company performance. Cash Bonus The Company's Incentive Bonus Program achieves the second goal of the Company's compensation philosophy, that of rewarding financial and operating results on an annual basis. The Company developed the Incentive Bonus Program in 1988 with the assistance of independent executive compensation consultants, and the Program has been administered since then by the Company's Human Resource Department for the benefit of executive officers and other key personnel. The bonus pool is determined annually by reference to the Company's return on equity (ROE), and each individual's specific bonus allocation is calculated by multiplying ROE (adjusted for accrued incentive pay and taxes) by his or her base salary and by a bonus factor which is based on his or her position within the Company. As borne out in the six-year history of the Company's Incentive Bonus Program, for years in which the Company does not have a strong return on equity, a significant portion of management's annual compensation is reduced. Thus, bonuses comprise the part of management compensation that is "at risk" based on the Company's annual performance. Long-Term Incentive Plan Rewarding Company executives on a long-term basis is accomplished through the Company's Long-Term Incentive Plan, a stock option plan approved by the Company's shareholders in 1988. By encouraging management investment in Company stock, the Plan aligns management's interests with that of the shareholders; namely, to enjoy long-term appreciation in the value of the Company's common stock. At the Plan's inception, an independent executive compensation consulting firm recommended the number of options that should be granted to the Company's executive officers and other key personnel. The Executive Compensation Committee awarded options at levels below those initially advised by the consultants and, since then, have awarded options generally consistent with the first year's levels. During the first three years of option grants, all options were granted at the market price prevailing at the time of the grant. For different reasons, the option price has been established above the market price in the last three years. In 1992, the Committee set the price at the prior year-end market price rather than the then current market price. The Committee believed that the prevailing market price plus $3.38 was more reflective of the true value of the Company's shares at that time. In 1993, the Company completed a public offering of common stock priced at $22 in February and the Committee established the option price in July at $22, even though the market price on the grant date was $5 lower, or $17 per share. In 1994, Tyson's tender offer was $30, so the Committee established the option price at $30 instead of the 1994 year-end trading value of $25.50. Deferred Compensation The final significant component of the Chief Executive Officer's compensation is deferred compensation, serving both goals of providing a competitive compensation package and rewarding results. Mr. Keeler's deferred compensation is essentially a retirement plan with payouts beginning the year after Mr. Keeler retires as Chief Executive Officer, but payouts are calculated by reference to the increase in the Company's book value over the term of Mr. Keeler's service. Specifically, 1.5% of the annual increase in the Company's book value is allocated annually to a deferred compensation account which, together with accrued interest, is payable to him over a five-year period beginning in the year after his retirement. However, if Mr. Keeler's employment is terminated involuntarily or because of a change in control of the Company, the balance of Mr. Keeler's deferred compensation account becomes payable immediately. Chief Executive Officer Compensation For the last fiscal year, Mr. Keeler received a base salary percentage increase of 2%, the average pay increase for all employees. This increase maintains a base salary competitive with chief executive positions within the state and industry. Though Mr. Keeler's bonus factor was the same for the last fiscal year as it has been since 1988, his bonus was lower because the Company's ROE was lower. Mr. Keeler's deferred compensation allocation was higher than the last fiscal year because, as described above, deferred compensation is singularly a function of increase in the Company's book value. Finally, the number of stock options awarded Mr. Keeler under the Long Term Incentive Plan was the same as it has been for the last five years, reflecting a systematic effort to enhance Mr. Keeler's personal financial interest in the strong management of the Company. The bonus and deferred compensation awards for Mr. Keeler in the last fiscal year are reflected in the Summary Compensation Table set forth below and are, as already described, consistent with improvements in the Company's financial profile. Indeed, since the end of fiscal 1988, the first year of Mr. Keeler's tenure with the Company, the Company's total market capitalization has risen from $84,354,400 to $280,737,864 at the end of fiscal 1994. Herman D. Mason Charles L. Campbell Charles W. Wampler, Jr. Executive Compensation Committee Members SUMMARY COMPENSATION The Summary Compensation Table below contains information concerning annual and long-term compensation provided to the Company's Chief Executive Officer and the other four most highly compensated executive officers of the Company for all services rendered to the Company and its subsidiaries for the fiscal year sending July 2, 1994, July 3, 1993 and June 27, 1992. Messrs. Holler and Marshall first became executive officers in fiscal year ended July 2, 1994. Accordingly, their compensation is detailed beginning in that year. SUMMARY COMPENSATION TABLE
Long Term Other Annual Compensation Compensation Compensation Name and Options Principal Position Year Salary ($) Bonus ($) Awarded (#) ($) James L. Keeler 93-94 $245,096 $159,458 33,750 $229,212 Chief Executive 92-93 236,808 172,783 33,750 178,685 Officer & President 91-92 228,800 58,889 33,750 69,463 James L. Mason 93-94 $172,221 $75,958 14,500 $6,042 President, 92-93 160,610 71,859 14,500 5,220 Wampler-Longacre 91-92 152,250 24,492 14,500 3,935 V. Eugene Misner 93-94 $163,882 $66,638 7,500 $5,929 Vice President 92-93 160,610 71,859 14,500 5,465 Wampler-Longacre 91-92 152,250 24,492 14,500 4,500 Henry L. Holler 93-94 $133,099 $48,107 7,500 $4,951 Vice President Sales & Marketing Kenneth D. Marshall 93-94 $133,099 $48,107 7,500 $4,956 Vice President Plant Operations _____________________________ Includes Company contributions made to the Company's Profit Sharing and Salary Savings Plan and term life insurance premiums paid by the Company on behalf of the executive officers; for Mr. Keeler, "Other Compensation" also includes deferred compensation.
OPTION GRANTS IN LAST FISCAL YEAR
% of Total Potential Realizable Options Exercise Value at Assumed Options Granted to or Base Annual Rates of Granted Employee in Price Expiration Stock Appreciation (#) Fiscal Year $/Share Date for Option Term 5% 10% James L. Keeler 33,750 33.7% $30.0 7/3/99 $85,900 373,545 James L. Mason 14,500 14.5 30.0 7/3/99 36,905 160,486 V. Eugene Misner 7,500 7.5 30.0 7/3/99 19,088 83,010 Henry L. Holler 7,500 7.5 30.0 7/3/99 19,088 83,010 Kenneth D. Marshall 7,500 7.5 30.0 7/3/99 19,088 83,010
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Value of Unexercised Number of In-The-Money Unexercised Options at Fiscal Fiscal Shares Year-End (#) Year-End ($) Acquired Value Exercisable/ Exercisable/ Name On Exercise (#) Realized ($) Unexercisable Unexercisable James L. Keeler 33,750 330,581 101,250/67,500 704,531/164,531 James L. Mason 13,500 132,233 43,500/29,000 302,689/70,686 V. Eugene Misner 22,500 231,138 43,500/22,000 302,689/70,686 Henry L. Holler 6,000 49,545 22,500/15,000 156,525/36,562 Kenneth D. Marshall 6,000 51,645 22,500/15,000 156,525/36,562 Represents the difference between the exercise price of the option and $25.50, the closing price of the Company's common stock as reported on the NASDAQ/National Market System on July 1, 1994.
EXECUTIVE AGREEMENTS The Company has an employment agreement with the Chief Executive Officer which expires June 27, 1998. The agreement governs Mr. Keeler's compensation, specifically his base salary, bonus, perquisites and benefits. Pursuant to the agreement, during the current fiscal year, Mr. Keeler's base salary is $249,998 and his bonus factor, discussed under "Cash Bonus" on page 9 is 3.6, the same as the past five years. In any event, Mr. Keeler is guaranteed a bonus of $25,000. Mr. Keeler's deferred compensation allocation will continue to be calculated at 1.5% of the increase in the Company's book value over each preceding year, as explained previously under "Deferred Compensation." Mr. Keeler's perquisites and benefits are consistent with those provided to the Company's senior management. The Company also has entered into severance agreements with each of James L. Keeler, James L. Mason, V. Eugene Misner, Henry L. Holler and Kenneth D. Marshall (the Severance Agreements). Pursuant to the Severance Agreements, each of these individuals is entitled to certain payments (described below) if the Company terminates his employment during a specified period following a "Change in Control" of the Company. For purposes of the Severance Agreements, a "Change in Control" occurs (A) when an individual, entity or group acquires beneficial ownership of 20% or more of the combined voting power of the Company's outstanding stock, subject to certain exceptions set forth in the executive's severance agreement, (B) when individuals who as of February 4, 1994 constitute the Board of Directors (the "Incumbent Board") and individuals whose election, or nomination for election by the shareholders of the Company, was approved by a vote of at least seventy-five percent of the directors then comprising the Incumbent Board (who shall after election be considered members of the Incumbent Board unless such election occurs as a result of an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Company's Board of Directors) shall cease to constitute a majority of the Company's Board of Directors, (C) upon the approval by the shareholders of the Company of are organization, merger or consolidation except in certain instances set forth in the executive's severance agreement, or (D) upon approval by the shareholders of the Company of the complete liquidation or dissolution of the Company or the sale or other disposition of all or substantially all of the assets of the Company, except in certain instances set forth in the Severance Agreements. The Severance Agreements for each of Messrs. Keeler and Mason provide that if the Company terminates his employment during the three year period following a Change in Control of the Company, other than for death, Cause (willful and continued failure to perform duties or willful engaging in illegal conduct: defined more specifically in the Severance Agreements) or Disability (as defined in the Severance Agreement), or if here signs for Good Reason (includes an adverse change in status or position, a reduction in base salary or benefits, or relocation: defined more specifically in the Severance Agreements) during such three year period, he is entitled to receive an amount in cash (the Severance Payment) equal to three times his total annual compensation, which includes: (A) the higher of (x) his annual base salary on the date of termination or (y) his annual base salary in effect immediately prior to the Change in Control and (B) an amount equal to the average of the bonuses awarded to him in each of the three previous years, including, in the case of Mr. Keeler, any bonuses awarded pursuant to any deferred compensation arrangements. In the event that such payments become subject to an excise tax imposed by Section 4999 of the Internal Revenue Code (or any similar tax), the employee shall be entitled to receive a "gross-up" payment in respect of such taxes and in respect of any taxes on such gross-up payment as specified in his Severance Agreement. These Severance Agreements also provide for the continuation of employee welfare benefits (such as health insurance) for three years after termination if his employment is terminated during such three year period. In addition, Mr. Keeler will be entitled to receive the Severance Payment and other severance benefits if he resigns for any reason during the 30-day period immediately following the first anniversary of a Change in Control. The Severance Agreements for Messrs. Misner, Holler and Marshall are similar to those described above for Mr. Mason except they cover a two year period after a Change in Control, the amount payable is equal to one and one-half times his total annual compensation, and employee welfare benefits will continue for one and one-half years if his employment is terminated during such two year period. STOCK PRICE PERFORMANCE GRAPH The graph on the next page presents a comparison of five-year cumulative total shareholder returns for WLR Foods, Inc., the S&P 500 Index and a Peer Group Index. The graph reflects the annual return from the Company's five previous fiscal years-end, developed with a monthly index, assuming dividends are reinvested monthly. The graph also assumes an initial investment of $100 on June 30, 1989. The Peer Group Index consists of Cagles, Inc., Golden Poultry Co., Inc., Hudson Foods, Inc., Pilgrims Pride Corporation and Sanderson Farms, Inc., companies within the same industry and with similar equity market capitalization. 6/89 6/90 6/91 6/92 6/93 6/94 Comp 100 82 75 71 93 91 S&P 500 100 113 117 128 142 140 WLRF 100 106 105 83 103 156 EX-23 7 EXHIBIT 23 CONSENTS EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors WLR Foods, Inc.: We consent to incorporation by reference in the registration statements on Form S-8 (No. 33-27037 and No. 33-63364) and on Form S-3 ( No. 33-48293, No. 33-54692, and No. 33-63368) of WLR Foods, Inc. of our reports dated August 17, 1994, except Note 14 which is as of August 29, 1994, relating to the consolidated balance sheets of WLR Foods, Inc. and subsidiaries as of July 2, 1994 and July 3, 1993 and the related consolidated statements of earnings, shareholders' equity and cash flows and related schedules for each of the fiscal years in the three-year period ended July 2, 1994, which reports appear or are incorporated by reference in the July 2, 1994 annual report on Form 10-K of WLR Foods, Inc. KPMG PEAT MARWICK LLP Richmond, Virginia September 29, 1994 EX-24 8 EXHIBIT 24 POWER OF ATTORNEY Exhibit 24 SPECIAL POWER OF ATTORNEY Each of the undersigned officers and directors of WLR Foods, Inc. (WLR Foods), a Virginia corporation, appoints James L. Keeler and Delbert L. Seitz, or either of them (with full power to each of them to act alone) as his attorneys-in-fact and agents for him in such capacity either as an officer or director, or both, of WLR Foods, and authorizes such persons on behalf of WLR Foods, to sign and file any and all WLR Foods' registration statements, reports, schedules and other filings, and all amendments thereto, required or permitted to be filed under federal or state securities laws, including without limitation Forms 3, 4 and 5, registration statements, Form 10-K annual reports, Form 10-Q quarterly reports and Form 8-K current reports, with all exhibits and any and all documents required to be filed with respect thereto, with the Securities and Exchange Commission, National Association of Securities Dealers, and any regulatory authority for any U.S. state or territory, and each of us hereby ratifies and confirms all that our attorneys-in-fact and agents or each of them may lawfully do or cause to be done by virtue hereof. WITNESS the following signatures and seals. ________________ _________________________SEAL) Date John J. Broaddus ________________ ________________________(SEAL) Date Jane T. Brookshire ________________ ________________________(SEAL) Date George E. Bryan ________________ ________________________(SEAL) Date Charles L. Campbell ________________ ________________________(SEAL) Date Stephen W. Custer ________________ ________________________(SEAL) Date Calvin G. Germroth ________________ ________________________(SEAL) Date William H. Groseclose ________________ _______________________(SEAL) Date J. Craig Hott ________________ ________________________(SEAL) Date Peter A.W. Green ________________ ________________________(SEAL) Date Herman D. Mason ________________ ________________________(SEAL) Date Charles W. Wampler, Jr. ________________ ________________________(SEAL) Date William D. Wampler ________________ ________________________(SEAL) Date Henry L. Holler ________________ ________________________(SEAL) Date Kenneth D. Marshall ________________ ________________________(SEAL) Date James L. Keeler ________________ ________________________(SEAL) Date James L. Mason ________________ ________________________(SEAL) Date V. Eugene Misner ________________ ________________________(SEAL) Date Delbert L. Seitz 21696 EX-27 9 EXHIBIT 27 FINANCIAL DATA SCHEDULE
5 1000 YEAR JUL-02-1994 JUL-02-1994 771 0 52,665 360 83,047 138,393 268,773 128,919 283,051 68,404 52,643 61,416 0 0 94,741 283,051 727,270 727,270 632,620 632,620 63,606 0 4,989 26,486 9,897 16,551 0 0 0 16,551 1.51 1.51
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