<PAGE>
November 26, 1997
Securities and Exchange Commission
Division of Corporation Finance
400 5th Street, N. W.
Washington D.C. 20549
Re: Preliminary Proxy Statement - Gaylord Container Corporation
Ladies and Gentlemen:
On behalf of Gaylord Container Corporation, enclosed please find a notice of
Annual Meeting, preliminary proxy statement and proxy card in connection with
the Gaylord Container Corporation 1998 Annual Meeting of Stockholders. Also
enclosed pursuant to Rule 14a-101 is a copy of the Amended and Restated
Shareholder Value Plan. Definitive materials are intended to be released to
security holders on December 19, 1997.
Please feel free to call me at (847) 405-5531, if you have any questions.
Very truly yours,
/s/ David F. Tanaka
- - -------------------
David F. Tanaka
Vice President and General Counsel
cc: Forrest Dillon
Ken Love
Dan Casey
Jeff Park
Coleridge Gross
<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement / / Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
- - ------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
GAYLORD CONTAINER CORPORATION
- - ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
- - ------------------------------------------------------------------------------
(2) Aggregated number of securities to which transaction applies:
- - ------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is caluculated and how it was determined):
- - ------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction
- - ------------------------------------------------------------------------------
(5) Total fee paid:
- - ------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials:
- - ------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule O-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- - ------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- - ------------------------------------------------------------------------------
(3) Filing Party:
- - ------------------------------------------------------------------------------
(4) Date Filed:
- - ------------------------------------------------------------------------------
<PAGE>
"Preliminary Copies"
GAYLORD CONTAINER CORPORATION
PROXY STATEMENT
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held
February 4, 1998
You are cordially invited to attend the 1998 annual meeting of
stockholders ("Annual Meeting") of Gaylord Container Corporation ("Company")
which will be held on Wednesday, February 4, 1998 at 10:00 a.m. Chicago time at
520 Lake Cook Road, Deerfield, Illinois 60015, for the following purposes:
1. To elect nine directors of the Company to serve for terms commencing
with the Annual Meeting;
2. To approve an amendment to the Gaylord Container Corporation
Shareholder Value Plan;
3. To ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors; and
4. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on December 8, 1997
as the record date for determining the stockholders entitled to notice of, and
to vote at, the Annual Meeting or any adjournment or adjournments thereof. A
list of such stockholders will be available for examination by any stockholder
for any purpose germane to the meeting during normal business hours at the
Company's corporate headquarters, 500 Lake Cook Road, Suite 400, Deerfield,
Illinois 60015, during the 10-day period immediately prior to the Annual
Meeting.
It is important that your shares be represented at the meeting regardless
of the size of your holdings. Whether or not you plan to attend the Annual
Meeting, we urge you to mark, date and sign the enclosed proxy. An envelope is
enclosed for your convenience which, if mailed in the United States, requires
no postage. Your proxy is revocable at any time before it is voted. If you are
present at the meeting you may withdraw your proxy and vote in person, if you
so desire.
David F. Tanaka
Secretary
Deerfield, Illinois
December ___, 1997
YOU ARE URGED TO MARK, DATE, AND SIGN THE ENCLOSED
PROXY AND RETURN IT PROMPTLY. THE PROXY IS REVOCABLE
AT ANY TIME BEFORE IT IS VOTED.
<PAGE>
GAYLORD CONTAINER CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
February 4, 1998
TIME AND LOCATION OF ANNUAL MEETING
The 1998 annual meeting of stockholders (the "Annual Meeting") of Gaylord
Container Corporation, a Delaware corporation (the "Company"), will be held at
10:00 a.m. Chicago time on Wednesday, February 4, 1998 at 520 Lake Cook Road,
Deerfield, Illinois 60015.
PURPOSE AND SOLICITATION OF PROXIES
This proxy statement (the "Proxy Statement") and the enclosed proxy card
are being mailed on or about December ___, 1997 to the holders of Class A
Common Stock ("Common Stock") of the Company in connection with the
solicitation of proxies on behalf of the Board of Directors of the Company (the
"Board of Directors" or "Board") for use at the Annual Meeting and at any
adjournment or adjournments thereof. The purpose of this solicitation is for
election of directors to serve on the Board, approval of an amendment to an
existing long-term incentive plan and ratification of the appointment of the
Company's independent auditors.
RECORD DATE; VOTING AND REVOCATION OF PROXIES
Only stockholders of record as of the close of business on December 8,
1997 (the "Record Date") will be entitled to notice of, and to vote at, the
Annual Meeting. At the Annual Meeting, the Company's stockholders will be asked
to vote on proposals (i) to elect the nominees identified herein (the "Director
Nominees") as directors; (ii) to approve an amendment to the Gaylord Container
Corporation Shareholder Value Plan (" the Shareholder Value Plan"); and (iii) to
ratify the appointment of Deloitte & Touche LLP as the Company's independent
auditors. The details of each of these proposals are described below.
Proxies properly executed and returned in a timely manner will be voted at
the Annual Meeting in accordance with the directions noted thereon. If no
direction is indicated, proxies will be voted in favor of each of the proposals
outlined below and at the discretion of the proxyholders on all other business
as may properly be brought before the Annual Meeting or any adjournment or
adjournments thereof. Any stockholder submitting a proxy has the power to
revoke it at any time before it is voted either in person at the Annual
Meeting, by written notice to the Company's Secretary delivered before the
Annual Meeting or by delivery to the Company's Secretary before the Annual
Meeting of a properly executed later-dated proxy.
Pursuant to Delaware law, abstentions are treated as present and entitled
to vote and thus have the effect of a vote against a matter. Shares registered
in the names of brokers or other "street name" nominees for which proxies are
voted on some but not all matters will be considered to be voted only as to
those matters actually voted, and will not be considered for any purpose as to
the matters with respect to which a beneficial holder has not provided voting
instructions (commonly referred to as "broker non-votes").
<PAGE>
OUTSTANDING SHARES AND VOTING RIGHTS
Only the Company's Common Stock outstanding represented in person or by
proxy may vote at the Annual Meeting. Each holder of Common Stock is entitled to
one vote per share.
Mid-America Group, Ltd. ("MAG") beneficially owns less than 9 percent and
the Company's executive officers and directors, as a group, including the
shares owned by MAG, beneficially own or control less than 14% percent of the
Common Stock.
In connection with the Company's financial restructuring completed in
November 1992, the Company issued warrants to obtain Common Stock ("Warrants")
and simultaneously issued the shares of Common Stock obtainable upon the
exercise of all such warrants to a warrant trustee ("Warrant Trustee") which
holds such shares ("Trust Stock") in trust for the benefit of the holders of
the warrants, pending any exercise, or for the benefit of the Company, pending
any redemption or exchange of the warrants. In connection with this proxy
solicitation, the Warrant Trustee will vote, and has appointed the Secretary of
the Company as its proxy to vote, all shares of Trust Stock then held by the
Warrant Trustee in proportion to all other votes by holders of Common Stock.
As of the Record Date, there were outstanding _____________ shares of
Common Stock, including _____________ shares of Trust Stock held by the Warrant
Trustee, and ______________ Warrants to obtain shares of Common Stock. For
detailed information with respect to the beneficial ownership of the Common
Stock and the Warrants, see "Information With Respect To Certain Stockholders"
below.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board is currently composed of 11 directors, all of whom, with the
exception of Charles S. Johnson, have served as directors since the 1997
Annual Meeting of Stockholders. Mr. Johnson was elected to the Board in August
1997. Two of the Company's former directors, John Hawkinson and Richard S.
Levitt, will retire before and not stand for re-election at the Annual Meeting.
Beginning with the Annual Meeting, nine members will serve on the Board.
If elected at the Annual Meeting, each of the nine directors will hold
office until the next annual meeting of stockholders, and until a successor
shall have been duly elected and qualified. All of the Director Nominees were
recommended to the Board of Directors by the Nominating and Organizational
Planning Committee. Unless otherwise instructed, signed proxies that are
returned will be voted for election of all of the Director Nominees, provided
that if any of such nominees should be unable or should fail to act as such by
virtue of an unexpected occurrence, the proxies will be voted for such other
person or persons as will be determined by the holders of the proxies at their
discretion.
<PAGE>
DIRECTOR NOMINEES FOR ELECTION AT THE 1998 ANNUAL MEETING
Director Nominees
MARY SUE COLEMAN. Ms. Coleman has served as a director of the Company
since August 1996. Since 1995 she has served as President and Professor of
Biochemistry and Biological Sciences at the University of Iowa. She served from
1993 to 1995 as Provost and Vice President for Academic Affairs and Professor
of Biochemistry at the University of New Mexico and from 1992 to 1993 as Vice
Chancellor for Graduate Studies and Research at the University of North
Carolina at Chapel Hill. She serves on the board of directors of Meredith
Corporation, a publishing and television broadcasting company, Norwest Bank
Iowa, N.A. and on the Board of Trustees of Grinnell (Iowa) College. Member,
Audit Committee and Nominating and Organizational Planning Committee. Age 54.
HARVE A. FERRILL. Mr. Ferrill has served as a director of the Company
since November 1992. He has served as Chief Executive Officer of Advance Ross
Corporation ("Advance Ross"), a wholly owned subsidiary of CUC International,
Inc., a membership services company, since 1996. He previously served as
Chairman or President and Chief Executive Officer of Advance Ross since 1990.
Advance Ross' primary business is Europe Tax-Free Shopping AB, the world's
largest refunder of value-added taxes. Advance Ross also operates PPC
Industries, which designs, manufacturers and installs electrostatic
precipitators for industrial pollution control applications. He has served as
Chairman of the Board of Directors of GeoWaste Incorporated, a publicly traded
waste management company, since 1991 and as President of Ferrill-Plauche Co.,
Inc., a private investment company, since 1982. Member, Audit Committee and
Compensation and Stock Option Committee. Age 64.
JOHN E. GOODENOW. Mr. Goodenow has served as a director of the Company
since November 1992. He is Chairman of the Board of Goodenow Bancorporation
where he served from 1979 to 1995 as President, Chief Executive Officer and a
director. Mr. Goodenow also serves as a director of Bank Midwest (Okoboji,
Iowa), Bank Midwest (Fairmont, Minnesota), each a private banking corporation.
Member, Audit Committee and Compensation and Stock Option Committee. Age 62.
DAVID B. HAWKINS. Mr. Hawkins has served as a director of the Company
since November 1986. He currently serves as President of Coldwell Banker/Mid-
America Group Realtors and Vice Chairman and a director of MAG, a real estate
investment company. He served as President or Executive Vice President and a
director of MAG from 1977 to 1993. Member, Nominating and Organizational
Planning Committee. Age 63.
WARREN J. HAYFORD. Mr. Hayford served as President, Chief Operating
Officer and a director of the Company from its organization in 1986 through
August 1988 and served as Vice Chairman and a director from that time until his
retirement as Vice Chairman effective December 31, 1992. He continues to serve
as a director. Mr. Hayford has served as Chairman, Chief Executive Officer and
a director of BWAY Corporation (formerly Brockway, Inc.), a manufacturer of
metal containers, since its formation in 1989. Mr. Hayford served from 1989 to
1996 as a director of System Software Associates, Inc., a developer and
marketer of business application software packages. Chairman, Nominating and
Organizational Planning Committee. Age 68.
CHARLES S. JOHNSON. Mr. Johnson has served as a director of the Company
since August 1997. He is Chairman, President and Chief Executive Officer of
Pioneer Hi-Bred International, Inc., an agricultural biotech company, where he
has held increasingly responsible positions since 1965. He serves on the board
of directors of the National Association of Manufacturers, the Progressive
Policy Institute, the National Policy Association, the Principal Financial
Group and NationsBank, N.A. He also serves as Chairman of Grand Valley (Iowa)
College and the Des Moines Chamber of Commerce. Age 59.
RALPH L. MacDONALD JR. Mr. MacDonald has served as a director of the
Company since May 1994. Mr. MacDonald is a principal of Amelia Investment
Corp., a private investment company. Prior thereto, he was a principal of
Island Capital Corporation ("Island Capital"), a private investment company.
He was formerly Managing Director-Corporate Finance and a member of the
Management Committee of Bankers Trust Company and its parent,
<PAGE>
Bankers Trust New York Corporation, which he joined in 1964 and served in
various capacities until his resignation in March 1992 to co-found Island
Capital. Mr. MacDonald also serves as a director of Hercules, Inc., a specialty
chemical concern. Member, Compensation and Stock Option Committee and Audit
Committee. Age 55.
MARVIN A. POMERANTZ. Mr. Pomerantz has served as Chairman, Chief Executive
Officer and a director of the Company since its organization in 1986. Since
1980, Mr. Pomerantz has served as Chairman or President and a director of MAG.
From 1980 to 1982, he served as President of the Diversified Group, and later
as Executive Vice President of Navistar. Mr. Pomerantz formerly served as
President of the Board of Regents for the state universities in Iowa and
formerly served on the board of directors of Stone Container Corporation, a
manufacturer of packaging products. He formerly served on the Board of
Directors and the Executive Committee of the American Forest & Paper
Association. Age 67.
THOMAS H. STONER. Mr. Stoner has served as a director of the Company since
February 1993. He serves as Chairman of the Executive Committee of American
Radio Systems and served from 1965 to 1993 as Chairman and Chief Executive
Officer of Stoner Broadcasting Systems, Inc. , a private broadcast
communications company that merged with American Radio Systems in 1993. Since
1994, he has been Chairman of Chesapeake Bay Foundation, a charitable
foundation, after having served on the Board of Trustees since 1989. From 1965
to 1991 he served as Chairman of the Stoner McCray Systems, Inc., a privately
owned real estate development company, and from 1985 to 1989 he served as
director of Annapolis Banking and Trust Company, an affiliate of Mercantile
Bankshares Corporation, a publicly traded banking company. Member, Nominating
and Organizational Planning Committee. Age 62.
Required Vote
Election of each Director Nominee requires the affirmative vote by the
holders of a majority of the outstanding shares of Common Stock present
(whether by person or proxy) and entitled to vote at the Annual Meeting.
The Board of Directors recommends a vote " FOR" each Director Nominee.
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors held five meetings during fiscal 1997 and the
various committees of the Board held a total of nine meetings. During fiscal
1997, each Board member attended at least 75 percent of the meetings of the
Board and meetings of the committees of which he or she is a member.
Directors who are not current employees of the Company (the "Outside
Directors") are entitled to an annual fee of $26,000 plus an attendance fee of
$1,000 for each meeting of the Board or committee. Each Outside Director also
received on May 7, 1997 a one time grant of 1,000 "phantom" stock units of the
Company valued at $5.88 per unit, which vest only on retirement, death,
disability or a change in control of the Company. When vesting occurs, the
Outside Director will receive the cash value of the stock units at the
then-current market price. In addition, an Outside Director is entitled to
an annual fee of $5,000 for each committee chaired. During fiscal 1997, no
director fees were paid to Mr. Pomerantz. All directors are reimbursed for
expenses incurred as a director.
Beginning in fiscal 1996, Outside Directors may elect to defer all (but
not less than all) fees payable for service on the Board until they cease to be
directors or file a written revocation of their election. At the election of
the Outside Director, deferred fees accrue (i) interest at 300 basis points
over the six month U.S. Treasury bill rate in effect at the beginning of each
fiscal year ("Option A"); or (ii) gain or loss as if deferred fees were used to
acquire Common Stock at a 15 percent discount from the closing price at the
beginning of each fiscal year ("Option B"). Messrs. Goodenow, MacDonald, and
Stoner have elected to defer fees, all under Option B.
The Board, pursuant to its powers, has designated certain committees of
the Board, including a Compensation and Stock Option Committee ("Compensation
Committee"), an Audit Committee ("Audit Committee") and a Nominating and
Organizational Planning Committee ("Nominating Committee"), the functions of
which are described below:
<PAGE>
The Compensation Committee is responsible for establishing and maintaining
employee benefit programs, plans and trusts, including incentive compensation
programs, and the administration and grant of stock-based awards under the
Company's 1987 Key Employee Stock Option Plan ("1987 Plan"), the 1989 Long Term
Incentive Plan ("1989 Plan"), and the 1997 Long-Term Equity Incentive Plan
("1997 Plan"). The Compensation Committee met five times in fiscal 1997.
The Audit Committee's functions include making recommendations to the
Board on the selection of the Company's independent auditors, reviewing the
scope of the independent auditors' examination and meeting with the independent
auditors, internal auditors, the Board and certain officers and employees of
the Company to review the adequacy of internal controls. The Audit Committee
held two meetings in fiscal 1997.
The Nominating Committee's responsibilities include recommending
candidates for election to the Board or to fill vacancies on the Board,
reviewing the performance of Board members and establishing and reviewing a
plan of succession for the Company's Chief Executive Officer, in the event of
death, disability, retirement or other termination of employment. The
Nominating Committee met twice in fiscal 1997. The Nominating Committee will
consider a director nominee recommended by a stockholder, if written notice of
such recommendation is delivered by registered mail to the Secretary of the
Company not less than 90 days nor more than 120 days before a meeting of
stockholders at which directors are to be elected. A recommendation must be
accompanied by a comprehensive written resume of the recommended nominee's
business experience and background and a consent in writing signed by the
recommended nominee that he or she is desirous of being considered as a
nominee, and if nominated and elected, he or she will serve as a director. Such
a recommendation by a stockholder does not guarantee that the Nominating
Committee will propose any such nominee to the Board.
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE
SHAREHOLDER VALUE PLAN
General
The Compensation Committee and the Board have approved and recommend that
stockholders approve an amendment to the Shareholder Value Plan which would (i)
extend the Shareholder Value Plan from the original expiration date of December
31, 1997 to December 31, 2000; and (ii) reduce the participants in the
Shareholder Value Plan from all four of the Company's executive officers to
solely the Chief Executive Officer.
The Shareholder Value Plan was approved by the Company's stockholders at
the 1994 Annual Meeting of Stockholders as a means to directly tie the long-
term incentive compensation of the Company's executive officers to the
creation of shareholder value. As approved, the Shareholder Value Plan became
effective for five years beginning on January 1, 1993 and covered the Company's
Chief Executive Officer, Mr. Pomerantz; President, Dale E. Stahl; Executive
Vice President, Daniel P. Casey; and Senior Vice President, Lawrence G. Rogna.
Following a review of the Company's long term incentive compensation plans, the
Compensation Committee and the Board decided that it was appropriate for the
Company to extend the Shareholder Value Plan for the term of Mr. Pomerantz's
latest employment agreement (see "Employment Agreements") to cover Mr.
Pomerantz alone. The material features of the Shareholder Value Plan, as
amended, are set forth below.
Terms of the Shareholder Value Plan, As Amended
Eligibility
The Company's Chief Executive Officer, Mr. Pomerantz, is eligible to
participate in the Shareholder Value Plan. Mr. Pomerantz is not eligible for
awards under the Company's Management Incentive Plan for the term of the
Shareholder Value Plan.
<PAGE>
Term
The Shareholder Value Plan will be in effect until December 31, 2000. All
deferred awards not paid by the end of calendar 2000 will be forfeited;
provided that awards earned in calendar 2000 may be payable during calendar
2001.
Determination of Award
At the end of each calendar year, Mr. Pomerantz will be entitled to
receive in cash 1.0 percent of the increase in Shareholder Value (as defined),
if any, created during that calendar year. Upon appropriate certification by
the Compensation Committee that an award has been earned, one-half of such
award will be immediately payable and the remaining one-half will be payable
in one-twelfth increments at the conclusion of any month in which the Company's
share price on the last trading day of such month exceeds the Year End Share
Value (as defined) for the calendar year in which such award was earned.
The increase in "Shareholder Value" for each calendar year is determined
by calculating the excess of (i) the product of (a) the average closing price
of the Company's stock during the last 10 trading days of such calendar year
and the first 10 trading days of the subsequent calendar year (the "Year End
Share Value"), multiplied by (b) 53,365,378 over (ii) the product of (a) the
highest Year End Share Value for any prior calendar year during which the
Shareholder Value Plan was in effect, currently $8.84, (provided that such
share value will not be less than $3.375), multiplied by (b) 53,365,378.
All calculations under the Shareholder Value Plan will be equitably adjusted by
the Board in the event of any stock split, stock dividend, reverse stock split
or other recapitalization.
Acquisition of the Company
In the event of an acquisition of the Company prior to December 31, 2000,
the aggregate purchase price of the Company will establish the final Year End
Share Value under the Shareholder Value Plan. Upon consummation of such
acquisition, final payments including all deferred amounts will be immediately
due and payable.
An acquisition of the Company means (i) a sale of substantially all of the
Company's assets to, or a merger with, another person in exchange for cash
and/or other property (other than a person where the Company's former
shareholders own immediately after such transaction directly or indirectly
stock possessing more than 50 percent of such person's voting power) or (ii)
an acquisition of the Company's stock by a person or group in exchange for
cash and/or other property so that such person or group has acquired stock
possessing more than 50 percent of the Company's voting power (other than a
person or group which includes Mr. Pomerantz, MAG, Mr. Hayford, or their
respective spouses or heirs).
Termination of Employment
If the Company terminates the employment of Mr. Pomerantz or he resigns
for Good Reason (see "Employment Agreements") before the end of a calendar year
other than because of his death, total and permanent disability, or serious
misconduct, he shall continue to participate in this plan for the calendar year
in which the termination occurs and the following calendar year.
If the Company terminates Mr. Pomerantz' employment for serious misconduct
or if Mr. Pomerantz resigns for other than Good Reason, he shall receive no
earned award for the calendar year in which such termination occurred or any
subsequent calendar year.
If Mr. Pomerantz ceases to be a Company employee because of his death or
total and permanent disability before the end of a calendar year, (i) he shall
be entitled to an award for such calendar year and the Year End Share Value
for such calendar year shall be determined by using the 10 trading days prior
to the termination of the participant's employment (including the date of
termination as the 10th day if it is a trading day) and the 10 trading days
<PAGE>
after the termination of his employment, and (ii) he shall be entitled to no
earned award for any subsequent calendar year.
Amendments to Shareholder Value Plan
The Shareholder Value Plan may be amended or modified by the Board;
provided, however, that any such amendment or modification which adversely
affects a participant must also be approved in writing by such participant.
New Plan Benefits
Benefits under the original Shareholder Value Plan, for calendar 1997,
cannot be determined until January 15, 1998. No amounts were payable to any
executive officer under the original Shareholder Value Plan for the calendar
year ended December 31, 1996. Benefits under the Shareholder Value Plan, as
amended, for the calendar year 1998 cannot be determined until January 15,
1999.
Stockholder Approval
The amendment to the Shareholder Value Plan is being submitted for
approval of stockholders so that any amounts paid thereunder will be fully
deductible by the Company for federal income tax purposes without regard to the
limitation imposed by Section 162(m) of the Internal Revenue Code of 1986, as
amended. Approval in accordance with such section requires that a majority of
the votes cast by the holders of the shares of Common Stock present and voting
at the meeting be votes for approval. If the requisite stockholder approval is
not received, the Company will not implement the amendment to the Shareholder
Value Plan.
The Board of Directors recommends a vote "For" Proposal 2.
PROPOSAL 3
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP has been selected by the Board of Directors, upon
the recommendation of the Audit Committee, to act as the Company's independent
auditors. Deloitte & Touche LLP served as the Company's auditors for the 1997
fiscal year. Representatives of Deloitte & Touche LLP will be present at the
1998 Annual Meeting; they will have the opportunity to make a statement, if
they desire to do so; and they will be available to respond to appropriate
questions. Stockholders are being asked to ratify the selection of Deloitte &
Touche LLP as the Company's independent auditors for the 1998 fiscal year.
The Board of Directors recommends a vote "For" Proposal 3.
INFORMATION WITH RESPECT TO CERTAIN STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock and warrants to obtain
Common Stock as of December 8, 1997 by (i) each holder known by the Company
to own beneficially more than 5 percent of the outstanding Common Stock, (ii)
each director and executive officer of the Company and (iii) all officers and
directors of the Company as a group. The numbers and percentages of Common
Stock include Trust Stock held by the Warrant Trustee. To the knowledge of the
Company, each stockholder has sole voting and investment power as to the shares
owned unless otherwise noted. The address of all directors and executive
officers is the address of the Company.
<PAGE>
<TABLE>
<CAPTION>
Warrants to Obtain
Common Stock Common Stock
------------ ------------------
Number Percent Of Number Of Percent Of
Of Shares Outstanding* Warrants Outstanding*
--------- ------------ --------- -------------
<S> (c) <C> <C> <C>
Marvin A. Pomerantz
and MAG(1) 4,504,942 8.3 0 --
4700 Westown Parkway
West Des Moines, IA 50625
Warren J. Hayford(2) 1,847,068 3.4 0 --
Mary Sue Coleman 1,000 -- 0 --
Harve A. Ferrill 10,000 -- 0 --
John E. Goodenow(3) 44,000 -- 0 --
David B. Hawkins(4) 26,200 -- 0 --
John Hawkinson(4)(5)(6) 68,102 -- 0 --
Charles S. Johnson 0 -- 0 --
Richard S. Levitt(4)(6) (7) 74,200 -- 0 --
Ralph L. MacDonald Jr. 20,000 -- 0 --
Thomas H. Stoner 12,000 -- 0 --
Dale E. Stahl 266,648 -- 0 --
Daniel P. Casey(8) 148,110 -- 0 --
Lawrence G. Rogna (9) 98,300 -- 0 --
All officers and 6,886,575 13.6% 0 --
directors as a group
( 20 persons) (10)
* Percentages less than 1 percent have been omitted.
</TABLE>
(1) MAG is owned by Mr. Pomerantz, his wife and trusts for the benefit of
their children. Mr. Pomerantz does not own directly any of these shares
except for 15,000 shares held in his own name. Mr. Pomerantz disclaims
beneficial ownership of shares held by MAG and attributable to his wife
and the trusts.
(2) The shares shown as beneficially owned by Mr. Hayford include 514,060
shares owned directly by trusts for the benefit of his children and
grandchildren, 218,496 owned directly by his wife and 50,000 owned by a
charitable family foundation. Mr. Hayford disclaims beneficial ownership
of shares held by the trusts, his wife and the foundation.
(3) The shares shown as beneficially owned by Mr. Goodenow include 1,000 owned
directly by his wife and 20,000 owned directly by Goodenow Bancorporation,
a family owned corporation. Mr. Goodenow disclaims beneficial ownership
of such shares.
(4) Messrs. Hawkins, Hawkinson and Levitt own options to purchase 24,200,
5,300 and 24,200 shares, respectively, of the Company's Common Stock,
which options were granted pursuant to the Company's Outside Director
Stock Option Plan. Although none of such options have been exercised, the
shares shown as beneficially owned by each of them include 100 percent of
such options, all of which are currently exercisable.
(5) The shares shown as beneficially owned by Mr. Hawkinson include 6,615
owned directly by his wife. Mr. Hawkinson disclaims beneficial ownership
of such shares.
(6) Messrs. Hawkinson and Levitt will retire from the Board prior to and not
stand for reelection at the Annual Meeting.
(7) The shares shown as beneficially owned by Mr. Levitt include 50,000 owned
by a trust for the benefit of his wife. Mr. Levitt disclaims beneficial
ownership of such shares.
<PAGE>
(8) The shares shown as beneficially owned by Mr. Casey include 12,360 owned
by his wife and 28,500 owned by his children. Mr. Casey disclaims
beneficial ownership of such shares.
(9) The shares shown as beneficially owned by Mr. Rogna include 2,800 owned
by his wife. Mr. Rogna disclaims beneficial ownership of such shares.
(10) The number and percentage of shares of Common Stock owned by the persons
named in the table and all officers and directors as a group include the
513,128 shares that such persons and group may obtain upon the exercise
stock options exercisable currently or within 60 days of December 8, 1997.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information with respect to
compensation of the Company's chief executive officer and the Company's other
executive officers (the "named executive officers") earned for the fiscal
years ended September 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Restricted
Other Annual Stock LTIP All Other
Name and Fiscal Salary Bonus Compensation Awards/ Options/ Payouts Compensation
Principal Position Year ($) ($) ($) ($) SARs (#) ($)(1) ($)(2)(3)(4)
- - ------------------ ------ ------- ----- ------------ ---------- -------- ------- ------------
<C> <S> <S> <S> <S> <S> <S> <S> <S>
Marvin A. Pomerantz 1997 762,500 0 0 0 0 0 53,500
(Chairman and Chief 1996 600,000 0 0 0 0 0 202,600
Executive Officer) 1995 600,000 0 0 0 0 2,236,400 4,500
Dale E. Stahl 1997 389,400 0 0 0 0 0 40,100
(President and Chief 1996 368,100 208,000 0 0 0 0 115,700
Operating Officer) 1995 346,900 375,000 0 0 0 894,500 4,500
Daniel P. Casey 1997 360,600 0 0 0 0 0 38,400
(Executive Vice 1996 344,400 208,000 0 0 0 0 112,400
President) 1995 326,900 353,000 0 0 0 894,500 4,500
Lawrence G. Rogna 1997 241,900 0 0 0 0 0 74,400
(Senior Vice President) 1996 230,900 125,000 0 0 0 0 114,000
1995 218,900 185,000 0 0 0 447,300 4,500
</TABLE>
<PAGE>
(1) Amounts shown are awards payable under the Company's Shareholder Value
Plan, a calendar year plan, in which only the named executive officers
were eligible to participate. Payment of a portion of such awards is
contingent upon the price of the Company's Common Stock remaining at
certain levels. See "Compensation Committee Report on Executive
Compensation." Awards for calendar 1997, if any, cannot be calculated
as of the date of this proxy statement.
(2) Includes for each of 1995, 1996 and 1997 employer contributions to the
Company's 401(k) Plan on behalf of Messrs. Pomerantz, Stahl, Casey and
Rogna, respectively, of $4,500.
(3) Includes for 1995, 1996 and 1997 cash payments in lieu of Company
contributions which could not be made because of Internal Revenue Code
limitations to Messrs. Pomerantz, Stahl, Casey and Rogna of $0,
$198,100 and $49,000; $0, $111,200 and $35,600; $0, $107,900 and
$33,900; and $0, $53,700 and $16,900, respectively. Beginning in 1995,
calculation of the payment was made on a calendar rather than fiscal
year basis. Amounts paid for calendar 1995 are included in fiscal 1996
compensation.
(4) Includes for 1996 and 1997 principal and interest on a relocation loan
to Mr. Rogna which was forgiven of $55,800 and $53,000, respectively.
Option/SAR Grants in Last Fiscal Year
No stock options or SARs were granted to the named executive officers
in fiscal 1997 under any stock option plan sponsored by the Company.
The following table shows information concerning the exercise of
options by the named executive officers in fiscal 1997 and the value of options
held by the named executive officers at the end of fiscal 1997.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and Year-End Option/SAR Values
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs
Shares FY-End(#) at FY-End($)
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized($) Unexercisable(1) Unexercisable(2)
- - ------------------- ----------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
Marvin A. Pomerantz 0 0 0/0 0/0
Dale E. Stahl 0 0 177,148/0 884,700/0
Daniel P. Casey 0 0 80,000/0 419,400/0
Lawrence G. Rogna 0 0 50,000/0 257,200/0
</TABLE>
(1) Options only are included. No SAR grants have been made.
(2) The closing price of the Common Stock on September 30, 1997 was $8.50.
EXECUTIVE OFFICERS
MARVIN A. POMERANTZ. See Director Nominees for Election at the 1998 Annual
Meeting.
DALE E. STAHL. Mr. Stahl has served as President and Chief Operating
Officer of the Company since August 1988. From March 1988 through August 1988,
Mr. Stahl served as Vice President of the Company. From 1978 to 1988, he was
employed by Union Camp Corporation, an integrated paper packaging manufacturer,
starting in sales and ultimately being promoted to Vice President-General
Manager of the container division. He is currently serving as a director of
AMCOL International Corporation, a diversified specialty mineral, chemical and
environmental company. Age 50.
<PAGE>
DANIEL P. CASEY. Mr. Casey has served as Executive Vice President and
Chief Financial Officer of the Company since February 1990. From July 1988
through February 1990, Mr. Casey served as Senior Vice President-Financial
and Legal Affairs of the Company and from January 1988 through June 1988 in
the same position for each of the Company and Mid-America Packaging, Inc.,
which merged with the Company in June 1988. From March 1987 through January
1988, Mr. Casey served as Vice President-Financial and Legal Affairs for each
of the Company and Mid-America. Age 55.
LAWRENCE G. ROGNA. Mr. Rogna has served as Senior Vice President of the
Company since February 1990. From December 1988 through February 1990, Mr.
Rogna served as Vice President-Human Resources of the Company. From 1981 to
1988 he was employed by Rohr Industries, Inc., a manufacturer of components
for aircraft and space vehicles, where he served as Vice President, Human
Resources from 1983 to 1988. Age 51.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Pomerantz
effective as of June 1, 1997. The employment agreement is for a term ending
on December 31, 2000 and provides for an annual base salary of no less than
$750,000, participation in the Shareholder Value Plan (if approved at the
Annual Meeting) and participation in all salaried employee benefit plans and
programs of the Company. Under the terms of his employment agreement, Mr.
Pomerantz will be eligible to receive stock option or restricted stock grants
beginning January 1, 1998, but not to participate in the Company's Management
Incentive Plan. The employment agreement provides Mr. Pomerantz with
supplemental annual retirement income payments commencing on the date of
retirement equal to 50 percent of his average base salary and bonus for the
four highest years of service with the Company, less primary Social Security
benefits and any amounts payable under the Company's pension plan. Early
retirement reductions are included under the supplemental retirement plan.
In the event that Mr. Pomerantz's employment is terminated as a result of
his disability, Mr. Pomerantz will be entitled to receive his base salary for
12 months after such termination. In the event that Mr. Pomerantz's employment
is terminated as a result of his death, his estate will be entitled to receive
his base salary which is then accrued and unpaid. In the event that Mr.
Pomerantz's employment is terminated by the Company for any other reason other
than Serious Misconduct (as defined below) or by Mr. Pomerantz for Good Reason
(as defined below), he will be entitled to receive his full compensation for
the balance of the term of the employment agreement. For purposes of the
employment agreement, "Good Reason" means Mr. Pomerantz's resignation due to
substantial diminution of his duties, a reduction of his perquisites, a
change in principal office location or a material uncured breach by the Company
of the employment agreement, and "Serious Misconduct" means embezzlement or
misappropriation of Company funds, commission of a felony, willful disregard
for his duties, violation of any duty of loyalty, repeated acts causing public
disgrace to the Company, disclosure of the Company's confidential information,
or engaging in competition with the Company at any time before December 31,
2001.
The Company has entered into an employment letter agreement for an
indefinite term with each of Mr. Stahl, under which he is serving as President
and Chief Operating Officer at an annual salary of $400,000 effective January
1998, Mr. Casey, under which he is serving as Executive Vice President at an
annual salary of $365,000 effective January 1998 and Mr. Rogna, under which he
is serving as Senior Vice President at an annual salary of $242,000 effective
January 1998.
If any of Messrs. Stahl, Casey or Rogna becomes disabled and the Company
elects to terminate such executive, such executive will be entitled to receive
his full base salary and benefits for 12 months following such termination. If
the Company otherwise terminates the employment of any such executive, such
executive will be entitled to his full base salary and benefits for the 24
months following such termination; provided, however, that the final 12 months
of payments will be reduced by the amount, if any, received by such executive
from other employment. Pursuant to the terms of their employment agreements,
each of Messrs. Stahl, Casey and Rogna is entitled to participate in the
Shareholder Value Plan until December 31, 1997 and in the Company's salaried
employee benefit and incentive plans.
Each of Messrs. Stahl, Casey and Rogna is party to a severance
compensation agreement with the Company. Pursuant to such agreement, if any
such executive is terminated within 24 months after a change in control of the
Company, such executive will be entitled to a severance payment equal to two
times the sum of such executive's base salary plus his target bonus, as such
bonus is provided for in the Company's Management Incentive Plan. Target bonus
amounts for Messrs. Stahl, Casey and Rogna currently are 50 percent, 50 percent
and 40 percent, respectively, of base salary. In connection with the
agreements, the Company also provides reimbursement of any excise tax imposed
on severance payments.
<PAGE>
Each of Messrs. Stahl, Casey and Rogna is a participant in the
Supplemental Executive Retirement Plan ("SERP") that was established in 1995.
Pursuant to the SERP, each such executive will receive supplemental annual
retirement payments commencing the later of age 55 or the date of retirement
equal to up to 60 percent of his average base salary and bonus, excluding
awards under the Shareholder Value Plan, for the four highest of the seven
years prior to retirement, less primary Social Security benefits and any
amounts payable under the Company's pension plan. Such payments range from 35
percent (at age 55) to 60 percent (at age 65) of the executive's average base
salary and bonus.
CERTAIN TRANSACTIONS
MAG and certain of its subsidiaries provided office space and
professional, administrative, aviation and clerical services to the Company
during fiscal 1997 at a cost of approximately $178,000. Fees for these
services are determined on the basis of costs incurred and the fair market
value of the office space. It is expected that MAG and such subsidiaries
will continue to provide office space and such services to the Company in the
future.
The Company has entered into agreements with certain of its stockholders
which provide such stockholders with the right in certain circumstances to
require the Company to register, at the Company's expense, the shares of
Common Stock owned by them under the Securities Act of 1933, as amended.
<PAGE>
The Company has entered into employment agreements with Messrs. Pomerantz,
Stahl, Casey and Rogna. See "Employment Agreements."
PENSION PLAN
The Gaylord Container Retirement Plan (the "Pension Plan") is a qualified,
non-contributory defined benefit plan which covers substantially all employees
of the Company, including both salaried and hourly employees. The following
table shows estimated annual benefits payable to salaried employees under the
Pension Plan on a straight life annuity basis upon normal retirement with
indicated years of credited service and final average annual compensation:
<TABLE>
<CAPTION>
Final Years of Service (2)
Average ---------------------------------------------------------
Earnings(1) 15 20 25 30 35
- - ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$100,000 (3) (4) $16,750 $23,250 $29,750 $35,000 $40,500
$150,000 $25,125 $34,875 $44,625 $52,500 $60,750
$200,000 $33,500 $46,500 $59,500 $70,000 $81,000
$250,000 $41,875 $58,125 $74,375 $87,500 $101,250
$300,000 $50,250 $69,750 $89,250 $105,000 $121,500
$350,000 $58,625 $81,375 $104,125 $122,500 $141,750
$400,000 $67,000 $93,000 $119,000 $140,000 $162,000
$450,000 $75,375 $104,625 $133,875 $157,500 $182,250
$500,000 $83,750 $116,250 $148,750 $175,000 $202,500
$550,000 $92,125 $127,875 $163,625 $192,500 $222,750
$600,000 $100,500 $139,500 $178,500 $210,000 $243,000
$650,000 $108,875 $151,125 $193,375 $227,500 $263,250
$700,000 $117,250 $162,750 $208,250 $245,000 $283,500
$750,000 $125,625 $174,375 $223,125 $262,500 $303,750
</TABLE>
(1) Compensation covered by the Pension Plan includes all cash compensation,
including amounts received under the Shareholder Value Plan, but does not
include compensation related to stock options, non-cash compensation or
deferred compensation. The amounts reflected in the above pension table do
not reflect the Social Security offset in accordance with the Pension Plan
benefit formula.
(2) As of September 30, 1997, the named executive officers had been credited
with the following years of service: Mr. Pomerantz, 9 years; Mr. Stahl,
9 years; Mr. Casey, 10 years; and Mr. Rogna, 8 years. The basic benefit
payable under the Pension Plan is computed on a straight life annuity
basis.
(3) For the 1997 Pension Plan year, the amount of compensation in the
calculation of retirement benefits for any participant is limited to
$150,000 subject to future increases based on cost of living adjustments
implemented by the Department of Treasury. The maximum estimated annual
benefits listed in this table do not include projected cost of living
increases.
(4) In addition to amounts payable under the Pension Plan, Messrs. Pomerantz,
Stahl, Casey and Rogna will receive supplemental retirement income. See
"Employment Agreements." Based on current and historical compensation,
the maximum annual supplemental retirement income payable to Messrs.
Pomerantz, Stahl, Casey and Rogna will be approximately $725,000,
$330,000, $309,000 and $180,000, respectively.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
During fiscal 1997, the members of the Company's Compensation Committee
were Messrs. Ferrill, Goodenow, Hawkinson, Levitt and MacDonald. No officers
or former officers of the Company serve on the Compensation Committee.
<PAGE>
Compensation Committee Report on Executive Compensation
This Compensation Committee report shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
The following has been submitted by the Compensation Committee of the
Board of Directors:
The Compensation Committee of the Board of Directors makes recommendations
to the Board regarding compensation of the Company's executive officers. The
philosophy of the Compensation Committee is to design an executive compensation
program to attract, motivate and retain the executive talent critical to the
Company's achievement of its objectives to increase shareholder value and
maximize returns to shareholders.
Key to the program are incentives which vary rewards with individual and
Company performance. Two compensation approaches are used to implement the
variable pay initiative: an annual cash incentive opportunity focused on
Company operating and financial performance for officers and key managers, and
a long-term incentive based on share price appreciation through grants of
restricted stock, grants of stock options or payments under the Shareholder
Value Plan.
General Executive Compensation Program Policies
To achieve its objectives, the Company has developed a series of executive
compensation policies:
The Company will provide levels of executive compensation that are competitive
with those provided by the relevant marketplace (as defined below).
The Company will provide annual cash incentive compensation for executives that
varies in a consistent and predictable manner with the operating and financial
performance of the Company.
The Company will provide programs that enable executives to achieve rewards
based on increased shareholder value to reinforce the link between executive
and shareholder interests.
Competitive Executive Compensation, Base Salary and Annual Incentive
Compensation
The Company seeks to provide levels of executive compensation that are
competitive at expected levels of individual and Company performance.
Competitiveness is defined as in keeping with the compensation of executives in
comparable positions and who have similar qualifications. The comparison group
for those executives is companies similar to the Company in industry and size.
Competitiveness is measured using data from a number of sources, including
published information, proxies, forest products industry surveys, which
includes data from the Dow Jones paper products peer group, and surveys by
consulting firms.
A salary range is established for each salaried position in the Company,
including each executive officer position. The midpoint of each salary range
is based on the average salary of equivalent positions at the other companies,
which the Company uses for comparison purposes. The salary range is from 80
percent to 120 percent of the midpoint. An individual's base salary is
determined by reviewing his or her sustained performance over time and
correspondingly positioning the executive officer's salary in the salary range
for his or her position. Salaries for the executive officers were increased
in fiscal 1997 to reflect their individual contributions and provide salaries
in line with competitive practices.
The Management Incentive Plan is designed to ensure that incentive
compensation varies in a consistent and predictable manner with the Company's
operating and financial performance. Performance targets and related amounts
to be paid to plan participants if the targets are achieved are determined
annually by the Board. Targets have been established for fiscal 1998 based on
the Company's earnings before interest, income taxes, depreciation and
amortization. Messrs. Stahl, Casey and Rogna received no payouts under this
plan for fiscal 1997. Mr. Pomerantz does not participate in the Management
Incentive Plan.
<PAGE>
Based on the same goals and targets, the Company also maintains a Deferred
Profit Sharing Plan, which provides for contributions to participants'
individual 401(k) accounts. Based on the results achieved in fiscal 1997, the
Company made no contributions to this plan. The Company's executive officers
participate in this plan.
Long-Term Incentive
The Company currently maintains two stock-based plans pursuant to which
non-qualified stock options may be granted: the 1989 Plan and the 1997 Plan.
Both Plans also permit the grant of incentive stock options, stock appreciation
rights, stock indemnification rights, restricted stock and performance awards.
Only non-qualified options and restricted stock have been granted to date.
The Shareholder Value Plan, as approved by the Company's stockholders on
February 2, 1994 ("Shareholder Value Plan"), directly ties the long-term
incentive compensation of the Company's four executive officers to the creation
of shareholder value.
The Shareholder Value Plan commenced January 1, 1993 and will expire on
December 31, 1997. All deferred awards not paid by the end of the calendar
1997 will be forfeited, provided that awards earned in calendar 1997 may be
payable during calendar 1998. None of Messrs. Pomerantz, Stahl, Casey or Rogna
received an award under this Plan based on Year-End Share Value for calendar
1996, the last year for which awards were determinable.
As discussed below under "Chief Executive Officer Compensation", during
fiscal 1997 the Compensation Committee, over the course of several meetings,
considered alternatives for the extension of Mr. Pomerantz's employment
agreement which expires December 31, 1997 and alternatives for extension of
the Shareholder Value Plan for all participants upon expiration on December 31,
1997. In extending Mr. Pomerantz's employment agreement to December 31, 2000,
the Compensation Committee recommended that, subject to shareholder approval,
the Shareholder Value Plan be amended to run through December 31, 2000 for Mr.
Pomerantz alone. This recommendation was approved by the Board in May 1997
and is contained in Proposal 2 herein.
The Shareholder Value Plan will not be extended beyond December 31, 1997
for Messrs. Stahl, Casey or Rogna. The Compensation Committee determined that
extending the Shareholder Value Plan for these participants is not the most
practical alternative, and in order to provide an equitable replacement has
authorized a one time grant of stock options in amounts which are directly
equivalent to each individual's degree of participation in the Shareholder
Value Plan. These grants, effective January 15, 1998, will have an exercise
price equal to the highest Year-End Share Value attained during the period of
the Shareholder Value Plan. The amount of these grants are 213,400, 213,400
and 106,700 shares respectively for Messrs. Stahl, Casey and Rogna.
Messrs. Stahl, Casey and Rogna will be provided future competitive
opportunity for long-term incentives based on share price appreciation
through additional stock grants under the 1989 Plan and the 1997 Plan.
Deductibility of Compensation under Section 162 (m) of the Code
Section 162(m) of the Code imposes a $1 million deduction limit on
compensation paid to the named executive officers of the Company.
Compensation is exempt from the $1 million deduction limit, however, if the
compensation qualifies for an exception, including an exception for certain
performance based compensation. Compensation paid under the Shareholder Value
Plan should qualify for the performance-based compensation exception, and
therefore compensation paid pursuant to the Shareholder Value Plan should not
be applied toward the $1 million deduction limit of Code Section 162(m). The
Company anticipates that the amount of compensation income received by each of
the Company's named executive officers, excluding income received pursuant to
the Shareholder Value Plan, will not exceed $1 million in 1997 or 1998.
Therefore, Code Section 162(m) should not cause the Company to be denied a
deduction for any compensation income paid to the Company's named executive
officers.
<PAGE>
Chief Executive Officer Compensation
After extensive review of competitive data and all other pertinent
factors, the Compensation Committee recommended and the Board approved a new
employment agreement with Mr. Pomerantz effective June 1, 1997 through December
31, 2000.
In structuring the new agreement, the Compensation Committee placed
continued emphasis on the creation of shareholder value. By providing a
program that consists primarily of base salary and long-term incentive directly
tied to the creation of shareholder value, the Compensation Committee believes
it has created a significant and proper focus. The program utilizes wholly
objective criteria for the long-term variable pay opportunity and Mr. Pomerantz
is not eligible to participate in the Management Incentive Plan.
As discussed previously, the Compensation Committee recommended and the
Board approved, subject to shareholder approval, as contained in Proposal 2
that the Shareholder Value Plan be amended to expire December 31, 2000
concurrent with Mr. Pomerantz's new employment agreement.
Extension of the Shareholder Value Plan provides a competitive opportunity
for Mr. Pomerantz in lieu of stock options for the period 1993 through 1998.
In order to provide a competitive opportunity for the remainder of the new
employment agreement, the Compensation Committee has authorized a grant of
300,000 stock options to Mr. Pomerantz effective January 15, 1998. The
exercise price will be the highest Year-End Share Value as determined under
the Shareholder Value Plan as of that date.
Mr. Pomerantz's base salary continues at the $750,000 level established
January 1, 1997.
Richard S. Levitt, Chairman
Harve A. Ferrill, member
John E. Goodenow, member
John Hawkinson, member
Ralph L. MacDonald, Jr., member
<PAGE>
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return of the
Company's Common Stock, the S&P 500 Composite Stock Index ("S&P 500") and an
index of a peer group of paper companies ("Peer Group") for the period of five
years beginning October 1, 1992 and ending September 30, 1997 (assuming that
the value of the investment in the Company's Common Stock and each index was
$100 on October 1, 1992 and that all dividends were reinvested). The Peer Group
index is comprised of nine medium to large sized companies whose primary
business is the manufacture and sale of paper products. Peer Group returns are
weighted each year based on each company's market capitalization at the
beginning of the year. The Peer Group comprises the common stocks of: Boise
Cascade, Bowater, Champion International, Consolidated Papers, Federal
Paper Board (through the date it was acquired), P.H.Glatfelter, International
Paper, Mead and Westvaco.
FIVE YEAR CUMULATIVE TOTAL STOCKHOLDER RETURNS
<TABLE>
<CAPTION>
9/93 9/94 9/95 9/96 9/97
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Company 58.32 226.67 250.00 196.67 226.67
S & P 500 113.00 117.17 152.02 182.93 256.92
Peer Group 100.50 131.94 159.78 153.60 198.51
</TABLE>
FINANCIAL STATEMENTS
The Company has enclosed its Annual Report to Stockholders, which includes
its Annual Report on Form 10-K for the year ended September 30, 1997, with
this Proxy Statement.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
(the "Commission") and the American Stock Exchange. Executive officers and
directors are required by Commission regulations to furnish the Company with
copies of all section 16(a) forms they file. Based solely on a review of the
copies of such forms furnished to the Company and written representations from
the Company's executive officers and directors, the Company believes that
during fiscal 1997 all filing requirements applicable to executive officers
and directors were met except that Mr. Casey was late in filing a Form 5
reporting a gift of Gaylord common stock by his wife to each of his four
children. All of the subject common stock is still held by his children.
<PAGE>
OTHER BUSINESS
The Board does not intend to present, and does not have any reason to
believe that others will present, any item of business at the Annual Meeting
other than those specifically set forth in the notice of the Annual Meeting. If
other matters are presented for a vote, however, the proxies will be voted on
such matters in accordance with the judgment of the persons acting under the
proxies.
PROPOSALS BY STOCKHOLDERS
Any proposals by stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders must be received by the Company no later than August
21, 1998.
You are again urged to attend the Annual Meeting. Proxies will be
solicited by the Board through the use of the mails. Proxies may also be
solicited by directors, officers and a small number of other employees of the
Company personally or by mail, telephone, telegraph or otherwise, but such
persons will not be separately compensated for such services. Brokerage
firms, banks, fiduciaries, voting trustees or other nominees will be requested
to forward the soliciting materials to beneficial owners of stock held of
record by them. The entire cost of the Board's solicitation will be borne by
the Company.
By Order of the Board of Directors
/s/ David F. Tanaka
-------------------
David F. Tanaka
Secretary
<PAGE>
"Preliminary Copies"
GAYLORD CONTAINER CORPORATION / PROXY
Proxy Solicited by the Board of Directors for Annual Meeting of Stockholders
February 4, 1998
The undersigned hereby appoints Marvin A. Pomerantz, Daniel P. Casey and David
F. Tanaka and each of them the undersigned's true and lawful attorneys and
proxies (with full power of substitution in each) to vote all Common Stock of
Gaylord Container Corporation, standing in the undersigned's name, at the
Annual Meeting of Stockholders of said corporation to be held at 520 Lake Cook
Road, Deerfield, Illinois 60015, on February 4, 1998 at 10:00 a.m. Chicago
time, upon those matters as described in the Proxy Statement for the Annual
Meeting and such other matters as may properly come before such meeting or
any adjournment or adjournments thereof.
Continued and to be signed on reverse side
<PAGE>
This proxy when properly executed will be voted in the manner directed by the
undersigned stockholder. If not otherwise specified, this proxy will be voted
FOR proposals 1, 2 and 3.
A vote FOR the following proposals described in the Proxy Statement for the
meeting is recommended.
If any other business is transacted at the Annual Meeting of Stockholders, this
Proxy shall be voted in accordance with the best judgment of the appointed
attorneys and proxies.
1. Election of Directors: Mary Sue Coleman, Harve A. Ferrill,
John E. Goodenow, David B. Hawkins,
Warren J. Hayford, Charles S. Johnson
Ralph L. MacDonald Jr.,
Marvin A. Pomerantz, Thomas H. Stoner
FOR WITHHOLD Instruction: To withhold authority to
vote for any individual nominee listed,
write that nominee's name here:
___ ___ _________________________________________________
2. Approval of the amendment to the Shareholder Value Plan
FOR AGAINST ABSTAIN
___ ______ ______
3. Ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors.
FOR AGAINST ABSTAIN
___ ___ ___
Dated: , 199_
(Signature of Stockholder)
(Signature of Stockholder)
Please sign your name exactly as it appears
hereon. If acting as attorney, executor,
trustee, or in other representative
capacity, please sign name and title. If
stock is held jointly, each joint owner
should sign.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
<PAGE>
GAYLORD CONTAINER CORPORATION
-----------------------------
SHAREHOLDER VALUE PLAN
----------------------
(as amended and restated effective January 1, 1998)
---------------------------------------------------
Term: Eight years commencing January 1, 1993 through December 31, 2000.
Purpose: To focus actions and decision-making on increasing shareholder
value.
Participants: Marvin A. Pomerantz - Chairman and Chief Executive Officer
Measurement: Measure year-to-year increase in shareholder value - The base or
beginning share value under the Plan is $3.375 per share.
The increase in value for a given calendar year shall be
determined as follows:
1) Multiply the beginning of year share value ($3.375 for calendar
1993 and, for each subsequent calendar year, the average closing
price for the first ten trading days in January of such calendar
year and the last ten trading days in the prior calendar year,
but in no event less than the highest year-end share value for
any prior calendar year with respect to which an award was earned
hereunder) by 53,365,378 (regardless of the number of Gaylord
shares actually outstanding).
2) Multiply the end of year share value (the average closing price
for the last ten trading days in December of such calendar year
and the first ten trading days in the subsequent calendar year)
by 53,365,378 (regardless of the number of Gaylord shares
actually outstanding).
3) Subtract the result in (1) from the result in (2) - This
represents the increase in share value upon which awards will be
made.
Increased stock price for valuation establishes a new base for a given
calendar year; reduced stock price does establish a new base for a given
calendar year, i.e., award cannot be duplicated.
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All calculations hereunder (including share values and number of shares)
will be equitably adjusted by Gaylord's Board of Directors in the event of any
stock split, stock dividend, reverse stock split, consolidation or other
recapitalization of Gaylord's capital stock, so that the awards intended to be
granted hereunder will not be affected thereby.
Acquisition
of Gaylord: In the event of an acquisition of Gaylord prior to December 31,
2000, the transaction price will establish the final valuation
under this plan. Upon an acquisition of Gaylord, final
payments including all deferred amounts, if any, which are
earned based on the acquisition price, will be due and payable
at the closing of any such acquisition of Gaylord.
For this purpose, an acquisition of Gaylord means (i) a sale of
substantially all of Gaylord's assets to, or a merger with,
another person for cash and/or property (other than a person
where Gaylord's former shareholders own immediately after such
transaction directly or indirectly stock possessing more than
50% of such person's voting power) or (ii) an acquisition of
Gaylord stock by a person or group (within the meaning of
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934)
so that such person or group has acquired stock possessing more
than 50% of Gaylord's voting power (other than a person or
group which includes Pomerantz, Mid America Group, Ltd., or
Warren J. Hayford, or their respective spouses or heirs).
Termination of
Employment: If Gaylord terminates the employment of Pomerantz or Pomerantz
resigns for Good Reason, before the end of a calendar year
other than because of his death, Total and Permanent
Disability, or Serious Misconduct, Pomerantz shall continue to
participate in this plan for the calendar year in which such
termination occurs and the following calendar year.
If Gaylord terminates Pomerantz for Serious Misconduct or
Pomerantz resigns for other than Good Reason, such participant
shall receive no earned award for the calendar year in which
such termination occurred or any subsequent calendar year.
If it is judicially determined in accordance with 4.03(f) of
the Employment Agreement between Pomerantz and Gaylord that
Pomerantz violated his covenant not to compete, set forth in
4.03 of such Agreement, then Pomerantz shall receive no earned
award for (i) calendar year in which such violation occurs, as
set forth in any such final judicial determination, or (ii)
any subsequent calendar year.
If Pomerantz ceases to be a Gaylord employee because of his
death or Total and Permanent Disability before the end of a
calendar year, (i) the earned award for such calendar year
shall be the amount calculated as set forth in Measurement
above, but using the ten trading days prior to the termination
of the participant's employment (including the date of
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<PAGE>
termination if it is a trading day) and the ten trading days
after the termination of his employment, and (ii) such
participant shall be entitled to no earned award for any
subsequent year.
Earned
Award: One percent of the annual increase in shareholder value will be
an earned award.
50% of any earned award will be paid as soon as practical
following the measurement period in which such award is earned.
The remaining 50% of the earned award will be deferred and
subject to vesting as set forth below.
The deferred amount will be paid in twelve equal installments
each of which is payable promptly following the end of any
month for which the AMEX reported closing price of Gaylord
common stock on the last trading day of such month equaled or
exceeded the threshold share value which was originally
required to earn such deferred award; provided that any
deferred amounts not required to be paid with respect to
month-end closing prices prior to January 1, 2001 will be
forfeited. Notwithstanding the foregoing, 1/12th of the
deferred amount of any award earned in year eight will be
payable promptly following the end of any month during calendar
2001 for which the AMEX reported closing price of Gaylord
common stock on the last trading day of such month equaled or
exceeded the threshold share value required to earn such
deferred award. Any deferred amount not required to be paid
with respect to 2001 month-end closing prices will be
forfeited.
Except as otherwise provided above, in no event will any award
be earned, nor will any deferred amount become payable with
respect to any share value reported after termination of
Pomerantz's employment for any reason or after any acquisition
of Gaylord.
All deferred awards outstanding on the date of an acquisition
of Gaylord which are payable, based on a threshold share value
equal to or less than the transaction price, will be payable
at the closing of the acquisition.
All payments shall be in cash.
Amendments: No modification, waiver or amendment of any provision of this
Plan shall be effective unless approved in writing by the Board
of Directors; provided, however, that in the event such
modification, waiver or amendment would adversely affect a
participant, then the written consent of the participant shall
be required.
Compliance
with IRC
162(m): This Plan as amended and restated effective January 1, 1998 has
been approved by Gaylord's Compensation Committee and is
subject to approval by Gaylord's shareholders. Gaylord's
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<PAGE>
Compensation Committee satisfies the requirements of Section
162(m)(4)(C)(i) of the Internal Revenue Code of 1986, as
amended, (the "Code"). No earned award hereunder will be
payable to Pomerantz unless and until this Plan as amended and
restated effective January 1, 1998 has been approved by a
majority of the votes of Gaylord's shareholders, as described
in Section 162(m)(4)(C)(ii) of the Code.
Other: All earned awards will be included as "incentive" in the year
paid for purposes of calculating benefits under the Gaylord
Retirement Plan or any Supplemental Retirement Agreement(s)
in effect.
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<PAGE>
EXHIBIT B
SUPPLEMENTAL RETIREMENT PLAN
Pay History of
MARVIN A. POMERANTZ
Calendar 1986 $527,500
" 1987 1,212,250
" 1988 988,350
" 1989 600,000
" 1990 600,000
" 1991 480,000
" 1992 480,000
" 1993 600,000
" 1994 1,282,000
" 1995 2,556,816
" 1996 879,546
