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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:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
GAYLORD CONTAINER CORPORATION
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(Name of Registrant as Specified in Its Charter)
GAYLORD CONTAINER CORPORATION
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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 calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(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:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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GAYLORD LOGO
GAYLORD CONTAINER CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
FEBRUARY 8, 2000
We cordially invite you to attend the 2000 Annual Meeting of Stockholders
("Annual Meeting") of Gaylord Container Corporation ("Company"), which will be
held on Tuesday, February 8, 2000 at 10:00 a.m. Chicago time at 520 Lake Cook
Road, Deerfield, Illinois 60015 to:
1. Elect 10 directors of the Company to serve for terms commencing with the
Annual Meeting;
2. Approve an increase in the number of shares available under the
Company's 1997 Long-Term Equity Incentive Plan;
3. Ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors; and
4. Transact such other business as may properly come before the meeting.
December 20, 1999 was the record date for determining the stockholders
entitled to notice of, and to vote at, the Annual Meeting. Any stockholder may
examine a list of the record holders for any purpose germane to the meeting
during normal business hours at the Company's headquarters, 500 Lake Cook Road,
Suite 400, Deerfield, Illinois 60015, beginning on January 29, 2000.
We want your shares to be represented at the meeting regardless of the size
of your holdings. Whether or not you plan to attend the Annual Meeting, please
mark, date and sign the enclosed proxy card. The enclosed envelope if mailed in
the United States requires no postage. You may also vote by telephone or via the
Internet by following the enclosed instructions. 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
January 10, 2000
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY. THE PROXY IS REVOCABLE AT ANY
TIME BEFORE IT IS VOTED.
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GAYLORD CONTAINER CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 8, 2000
TIME AND LOCATION OF ANNUAL MEETING
The 2000 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 Tuesday, February 8, 2000 at 520 Lake Cook Road,
Deerfield, Illinois 60015.
RECORD DATE; PURPOSE AND SOLICITATION OF PROXIES
Only stockholders of record as of the close of business on December 20,
1999 (the "Record Date") will be entitled to notice of, and to vote at, the
Annual Meeting. This proxy statement ("Proxy Statement") and the enclosed proxy
card are being mailed on January 10, 2000 to the holders of Class A Common Stock
("Common Stock"). The Board of Directors ("Board of Directors" or "Board") is
soliciting your proxy for use at the Annual Meeting and at any adjournment of
the meeting. This solicitation is for election of directors to serve on the
Board, approval of an increase in shares available under the Company's 1997
Long-Term Equity Incentive Plan ("1997 Plan") and ratification of the
appointment of the Company's independent auditors. The details of each of these
proposals are described below.
VOTING AND REVOCATION OF PROXIES
Proxies properly executed and returned will be voted at the Annual Meeting
in accordance with the directions noted. If there is no direction, proxies will
be voted in favor of each of the proposals outlined below and at the discretion
of the proxy holders on all other business as may properly be brought before the
Annual Meeting or any adjournment. A stockholder may revoke his or her proxy
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 a properly
executed subsequent proxy delivered at or before the Annual Meeting.
Under 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 whom proxies are voted on
some but not all matters will be considered voted only on those matters actually
voted. They will not be considered for any purpose on the matters for which a
beneficial holder has not provided specific voting instructions. The latter are
commonly called "broker non-votes".
OUTSTANDING SHARES AND VOTING RIGHTS
Each holder of the Company's Common Stock outstanding represented in person
or by proxy has one vote per share. Mid-America Group, Ltd. ("MAG") beneficially
owns less than nine percent and the Company's executive officers and directors,
as a group, including the shares owned by MAG, beneficially own or control less
than 16% percent of the Common Stock.
In connection with the Company's November 1992 financial restructuring, the
Company issued warrants to obtain Common Stock ("Warrants") and shares of Common
Stock that may be obtained when the Warrants are exercised ("Trust Stock"). A
trustee ("Warrant Trustee") holds the Trust Stock 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. The Warrant Trustee has
appointed the Secretary of the Company as its proxy to vote all shares of Trust
Stock held by the Warrant Trustee in proportion to all other votes by holders of
Common Stock.
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As of the Record Date, there were outstanding 54,800,133 shares of Common
Stock, including 1,053,379 shares of Trust Stock held by the Warrant Trustee and
1,053,379 Warrants to obtain shares of Common Stock. See "Information With
Respect To Certain Stockholders" below.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board is currently composed of 10 directors, all of whom have served as
directors since the 1999 Annual Meeting of Stockholders. If elected, each of the
10 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. If any Director Nominee becomes unable or unwilling to serve, the
proxies will be voted at the discretion of the proxy holders.
DIRECTOR NOMINEES FOR ELECTION AT THE 2000 ANNUAL MEETING
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, and on the Board of Trustees of
Grinnell (Iowa) College. Member, Audit Committee and Nominating and
Organizational Planning Committee. Age 56.
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 Cendant, 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
operates PPC Industries, which designs, manufacturers and installs electrostatic
precipitators for industrial pollution control applications. He is also a
director of Century Business Services, Inc., a provider of business services to
small-and medium-sized companies. Chairman, Audit Committee; member,
Compensation and Stock Option Committee. Age 66.
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. Member, Audit Committee and Compensation and Stock Option Committee.
Age 64.
DAVID B. HAWKINS. Mr. Hawkins has served as a director of the Company since
November 1986. He currently serves as Vice Chairman and a director of MAG, a
real estate investment company. He served as, Vice Chairman, President or
Executive Vice President and a director of MAG from 1977 to 1999. Member,
Nominating and Organizational Planning Committee. Age 65.
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 in 1992. He continues to serve as a director. Mr. Hayford has
served as Chairman and Chief Executive Officer or Vice Chairman 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 70.
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CHARLES S. JOHNSON. Mr. Johnson has served as a director of the Company
since August 1997. Since 1999, he has served as Executive Vice President of E.I.
DuPont de Nemours and Co. He is the former Chairman, President and Chief
Executive Officer of Pioneer Hi-Bred International, Inc., an agricultural
biotech company, where he 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 and the
Principal Financial Group. He also serves as Chairman of Grand View (Iowa)
College and is the former Chairman of the Des Moines Chamber of Commerce.
Member, Audit Committee and Compensation and Stock Option Committee. Age 61.
JERRY W. KOLB. Mr. Kolb has served as a director of the Company since
August 1998. Until his retirement in May 1998, he was Vice Chairman of Deloitte
& Touche LLP, an international public accounting and consulting firm. He joined
the accounting firm in 1957 and served as managing partner of the Chicago office
and as Chief Financial and Administrative Officer. Since 1998, Mr. Kolb has been
a member of the Supervisory Board of Directors of New Skies Satellites, N.V., a
commercial satellite communications company incorporated in the Netherlands.
Member, Audit Committee and Compensation and Stock Option Committee. Age 64.
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 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. Chairman,
Compensation and Stock Option Committee; member, Audit Committee. Age 57.
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.
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 has served on
the Board of Directors of Wellmark Blue Cross and Blue Shield of Iowa since
1998, Norwest Bank Iowa, N.A. since 1975, and Berkley, Inc., a sporting goods
manufacturer, since 1976. He currently serves on the Board of Directors of the
American Forest & Paper Association. Age 69.
THOMAS H. STONER. Mr. Stoner has served as a director of the Company since
February 1993. He is a director and Chairman of the Executive Committee of
American Tower Corporation, owner and operator of broadcast and wireless
communications towers. He served from 1993 to 1998 as Chairman of the Executive
Committee of American Radio Systems and 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. From
1994 to 1998, he was Chairman of Chesapeake Bay Foundation, a charitable
foundation, where he continues to serve on the Board of Trustees. From 1965 to
1991 he served as Chairman of 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, Compensation and Stock
Option Committee and Nominating and Organizational Planning Committee. Age 64.
REQUIRED VOTE
Election of each Director Nominee requires the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock present and
entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH DIRECTOR NOMINEE.
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MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors held four meetings during fiscal 1999 and the
various committees of the Board held a total of seven meetings. During fiscal
1999, 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, except for
Mr. Johnson, who attended six of nine meetings.
Directors who are not current employees of the Company ("Outside
Directors") receive an annual fee of $35,000 and an annual fee of $5,000 for
each committee chaired. In April 1999, each Outside Director also received an
option under the 1997 Plan to purchase 7,000 shares of Common Stock at an
exercise price of $8.50 per share, the fair market value. The option vests
ratably over three years. During fiscal 1999, no director fees were paid to Mr.
Pomerantz. All directors are reimbursed for expenses incurred as a director.
Outside Directors may elect to defer all cash fees payable for service on
the Board until they cease to be directors or file written revocation of their
election. Deferred fees may 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. Ferrill, Goodenow, Hawkins, Kolb and
MacDonald have elected to defer fees, all under Option B.
The Board has committees, a Compensation and Stock Option Committee
("Compensation Committee"), an Audit Committee and a Nominating and
Organizational Planning Committee ("Nominating Committee"). The Compensation
Committee establishes and maintains employee benefit programs, plans and trusts,
including incentive compensation programs. It also administers and approves
grants of stock-based awards under the 1997 Plan. The Compensation Committee met
two times in fiscal 1999.
The Audit Committee, among its other duties, recommends to the full Board
selection of the Company's independent auditors, reviews the scope of the
independent auditors' work and meets with the independent auditors, internal
auditors and certain officers and employees of the Company. Under the Audit
Committee's charter, a copy of which is attached as Appendix A to this Proxy
Statement, the Audit Committee provides for effective oversight of the financial
reporting process, the business risk process and adequacy of internal controls,
relationships with external and internal auditors and financial compliance
issues. The Audit Committee held three meetings in fiscal 1999.
The Nominating Committee recommends candidates for election to the Board or
to fill vacancies on the Board, reviews the performance of Board members and
establishes and reviews a plan of succession for the Company's Chief Executive
Officer and other senior managers. The Nominating Committee met twice in fiscal
1999. The Nominating Committee will consider a director nominee recommended by a
stockholder, if written notice of 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 signed, written
consent by the recommended nominee, showing his or her interest in serving 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
INCREASE IN THE NUMBER OF SHARES OF
COMMON STOCK AVAILABLE UNDER THE 1997 PLAN
GENERAL
The Compensation Committee and Board have approved and recommend that the
stockholders approve an increase in the number of shares of Common Stock that
may be issued under the 1997 Plan from 2,000,000 to 3,500,000. The additional
1,500,000 shares would be used for grants of nonqualified stock options,
incentive options under Section 422 of the Internal Revenue Code, restricted
stock or stock-based awards as provided by the 1997 Plan. The 1997 Plan is
currently qualified under Rule 16b-3 of the Securities Exchange Act of 1934,
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and the Company seeks stockholder approval of the increase in shares available
to remain qualified under Rule 16b-3. The following summary of the material
provisions of the 1997 Plan is subject to the full text of the 1997 Plan, a copy
of which may be obtained at no charge by writing to the Secretary of the
Company.
TERM
The 1997 Plan commenced on January 1, 1997 and will terminate on December
31, 2006 unless sooner terminated by the Board. Termination of the 1997 Plan
will not affect grants made prior to termination, but no grants will be made
after termination.
ADMINISTRATION
The Compensation Committee is currently administering the 1997 Plan.
Subject to the terms of the 1997 Plan, the Compensation Committee has authority
to (i) select employees to participate in the 1997 Plan; (ii) determine the
form, conditions and restrictions of grants; (iii) interpret the 1997 Plan; and
(iv) adopt, amend or rescind rules to administer the 1997 Plan.
ELIGIBILITY
Directors, officers and key employees of the Company and its subsidiaries
selected by the Compensation Committee may participate in the 1997 Plan.
Selection for participation with respect to one form of award under the 1997
Plan does not automatically result in selection for participation with respect
to other forms of awards under the 1997 Plan unless such result is specified by
the Compensation Committee or by the terms of the 1997 Plan. As of December 20,
1999, approximately 250 persons were participants or eligible to participate in
the 1997 Plan.
SECURITIES SUBJECT TO THE 1997 PLAN
If Proposal 2 is approved, the 1997 Plan will permit awards relating to up
to 3,500,000 shares of Common Stock. The shares to be delivered under the 1997
Plan may consist of authorized but unissued Common Stock or treasury Common
Stock not reserved for any other purpose. If any grant under the 1997 Plan
terminates, expires or lapses for any reason, any shares of Common Stock
underlying that grant are available for future grants unless related stock
appreciation rights are exercised. If a change in the Company's corporate
structure or shares occurs, such as a stock split, re-capitalization, or other
combination of shares, the Compensation Committee may adjust previous grants for
the number of shares, the exercise price per share and the number and kinds of
shares to be distributed. Based on the closing price of $6.63 per share for the
Company's Common Stock on December 20, 1999, the aggregate market value of
3,500,000 shares of Common Stock is approximately $23.2 million.
EFFECT OF TERMINATION OF EMPLOYMENT OR CHANGE IN CONTROL ON GRANTS
The rights of participants following termination of employment for any
reason or a change in control of the Company (as defined in the 1997 Plan) shall
be in accordance with the terms of the 1997 Plan and rules established by the
Compensation Committee.
STOCK OPTIONS
The 1997 Plan authorizes grants of stock options. The Compensation
Committee shall specify whether or not any option is intended to be an incentive
stock option described in Section 422 of the Internal Revenue Code. Options that
are not denoted incentive stock options are nonqualified stock options. All
stock options have an exercise price not less than the fair market value of the
Common Stock when the option is granted, and none may be exercised more than 10
years and one day from the date of grant. The Compensation Committee may
establish dates on which installment portions of any option may be exercised
during its terms, and may accelerate the time at which installment portions of
an outstanding option may be exercised.
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Payment for shares covered by a stock option may be in cash, shares of
Common Stock, a combination of cash and shares, promissory note or in such other
manner as determined by the Compensation Committee.
STOCK APPRECIATION RIGHTS
The 1997 Plan permits the grant of stock appreciation rights ("SARs") in
connection with a stock option at any time before the option expires. SARs give
an option holder the right to surrender all or a portion of the option and
receive Common Stock or cash equal to the difference between the option exercise
price and the fair market value at the time of surrender. SARs are exercisable
only to the extent that the related options are exercisable. The exercise of any
option will result in an immediate forfeiture of its related SAR, and the
exercise of a SAR will cause an immediate forfeiture of its related option. No
SARs have been granted.
STOCK INDEMNIFICATION RIGHTS
The 1997 Plan authorizes the Compensation Committee to grant stock
indemnification rights ("SIR") to optionees who are officers of the Company and
subject to Section 16(b) of the Exchange Act. Section 16(b) makes it impractical
for an officer to sell any Common Stock within a six-month holding period before
or after the grant of an option. After the holding period, an SIR permits the
holder to receive the difference between the fair market value of Common Stock
on the date of a stock option exercise and the greater of (i) the net sale price
received by the optionee or (ii) the purchase price paid for the shares on the
date the option was exercised.
An SIR and an SAR may not be awarded with respect to the same option. SIRs
may be granted at the same time options are awarded or at a later date. No SIRs
have been granted.
RESTRICTED STOCK
The 1997 Plan authorizes grants of restricted Common Stock. The
Compensation Committee determines the restrictions, the duration of the
restrictions and any circumstances requiring forfeiture. Restricted shares are
deposited with the Company during the period of any restriction, but while the
shares are restricted, participants have all of the rights of a holder of Common
Stock, including the right to receive dividends and to vote.
PERFORMANCE AWARDS
The 1997 Plan permits grants of performance awards. Performance awards may
include fixed dollar amount target grants, performance units and performance
shares. The value of a performance unit granted under the 1997 Plan is
determined by the Compensation Committee at the time of grant, while the value
of a performance share is the market value of a share of Common Stock.
The Compensation Committee establishes the time periods to measure
performance (the "performance cycle") and the performance goals for each
performance cycle. The Compensation Committee also determines the value and
amount of a performance award based upon the performance goals attained.
Performance goals may include financial or operating measures of the Company
(such as return on equity, return on assets or return on investment) or of a
specific division or operating unit and may be based on performance relative to
a peer group as determined by the Compensation Committee. Payment of earned
performance awards may be made to participants in cash or shares of Common Stock
as determined by the Compensation Committee. No performance awards have been
granted.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a brief summary of the federal
income tax rules relevant to stock options, SARs, SIRs, restricted stock and
performance awards. The rules are highly technical and subject to change. The
following discussion is limited to the federal income tax rules relevant to the
Company and to individuals who are citizens or residents of the United States.
The discussion does not address the state,
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local or foreign income tax rules relevant to stock options, SARs, SIRs,
restricted stock and performance awards.
Incentive Stock Options. An optionee will not recognize taxable income upon
the grant or exercise of an incentive stock option. However, the excess of the
fair market value of the share of the Common Stock on the date of exercise over
the option exercise price of the option may be included in alternative minimum
taxable income which may subject the optionee to the alternative minimum tax. An
optionee may be required to pay an alternative minimum tax even though the
optionee receives no cash upon the exercise of the incentive stock option with
which to pay such tax.
If an optionee holds the Common Stock acquired upon exercise of the
incentive stock option for at least two years from the date of grant and at
least one year following exercise (the "Statutory Holding Periods"), the
optionee's gain, if any, upon a subsequent disposition of such Common Stock is
taxed as long-term capital gain. The long-term capital gain of an individual
taxpayer is subject to a maximum federal tax rate of 20 percent.
If an optionee disposes of Common Stock acquired pursuant to the exercise
of an incentive stock option before satisfying the Statutory Holding Periods (a
"Disqualifying Disposition"), the optionee may recognize both compensation
income and capital gain in the year of disposition. The amount of the
compensation income generally equals the excess of (1) the lesser of the amount
realized on disposition or the fair market value of the Common Stock on the
exercise date over (2) the exercise price. The balance of the gain realized on
such a disposition, if any, is long-term or short-term capital gain depending on
whether the Common Stock has been held for more than one year following exercise
of the incentive stock option.
Special rules apply for determining an optionee's tax basis in and holding
period for Common Stock acquired upon the exercise of an incentive stock option
if the optionee pays the exercise price of the incentive stock option in whole
or in part with previously owned shares of Common Stock. Under these rules, the
optionee does not recognize any income or loss from the delivery of shares of
Common Stock (other than shares previously acquired through the exercise of an
incentive stock option and not held for the Statutory Holding Periods) in
payment of the exercise price. The optionee's tax basis in and holding period
for the newly acquired shares of Common Stock are determined as follows: as to a
number of newly acquired shares equal to the previously owned shares delivered,
the optionee's basis in and holding period (for capital gain, but not
Disqualifying Disposition, purposes) for the previously owned shares carry over
to the newly acquired shares on a share-for-share basis; as to each remaining
newly acquired share, the optionee's basis is zero (or, if part of the exercise
price is paid in cash, the amount of such cash divided by the number of such
remaining newly acquired shares) and the optionee's holding period begins on the
day after such share is transferred. Under proposed regulations, any
Disqualifying Disposition is deemed made from shares with the lowest basis
first.
If an optionee pays the exercise price of an incentive stock option in
whole or in part with previously owned shares that were acquired upon the
exercise of an incentive stock option and that have not been held for the
Statutory Holding Periods, the optionee recognizes compensation income (but not
capital gain) under the rules applicable to Disqualifying Dispositions. The
optionee may increase his or her basis in the shares received in an amount equal
to the compensation income he or she recognizes.
The Company is not entitled to any deduction with respect to the grant or
exercise of an incentive stock option or the subsequent disposition by the
optionee of the shares acquired if the optionee satisfies the Statutory Holding
Periods. If these holding periods are not satisfied, the Company is entitled to
a deduction in the year the optionee disposes of the Common Stock in an amount
equal to the optionee's compensation income.
Nonqualified Stock Options. An optionee does not recognize taxable income
upon the grant of a nonqualified stock option. At the time of exercise, however,
the optionee generally recognizes compensation income equal to the difference
between the exercise price and the fair market value of the shares of Common
Stock on the date of exercise. This income is subject to income and employment
tax withholding. The Company is entitled to an income tax deduction
corresponding to the compensation income recognized by the optionee.
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When an optionee disposes of shares of Common Stock received upon the
exercise of a nonqualified stock option, the optionee recognizes capital gain or
loss equal to the difference between the sales proceeds received and the
optionee's basis in the shares sold. The optionee's capital gain is long-term or
short-term, depending upon whether the shares sold were held for more than one
year. The Company does not receive a deduction for any capital gain recognized
by the optionee.
If an optionee pays the exercise price of a nonqualified stock option
entirely in cash, the optionee's tax basis in the shares of Common Stock
received equals the shares' fair market value on the exercise date, and the
optionee's holding period begins on the day after the exercise date. If,
however, an optionee pays the exercise price of a nonqualified stock option in
whole or in part with previously owned shares of Common Stock, then the
optionee's tax basis in and holding period for the newly acquired shares are
determined as follows: as to a number of newly acquired shares equal to the
number of previously owned shares delivered, the optionee's basis in and holding
period for the previously owned shares carry over to the newly acquired shares
on a share-for-shares basis; as to each remaining newly acquired share, the
optionee's basis equals the share's value on the exercise date, and the
optionee's holding period begins on the day after the exercise date.
In the case of an optionee subject to six-month short-swing profit
liability under Section 16(b) of the Exchange Act (typically, executive
officers, directors and major stockholders of the Company), the optionee's
compensation income equals the excess of the fair market value of the shares
acquired over the option exercise price. However, such excess is determined by
using the fair market value on the later of the date of exercise or the date six
months after the date of grant unless such optionee elects to be taxed based on
the fair market value of the shares on the date of exercise by filing an
election with the IRS within 30 days after the exercise date.
Stock Appreciation Rights. A participant who is granted an SAR recognizes
no income upon the grant of the SAR. At the time of exercise, however, the
participant recognizes compensation income equal to the sum of any cash received
and the fair market value of any shares of Common Stock received. This income is
subject to income and employment tax withholding. The Company is entitled to an
income tax deduction corresponding to the compensation income recognized by the
participant.
Stock Indemnification Rights. A participant who is granted an SIR
recognizes no income upon the grant of the SIR. At the time of exercise,
however, the participant recognizes compensation income equal to any cash
received in respect of the SIR. This income is subject to income and employment
tax withholding. The Company is entitled to an income tax deduction
corresponding to the compensation income recognized by the participant.
Restricted Stock. A participant who is granted restricted stock may make a
Section 83 election to have the grant taxed as compensation income at the date
of receipt, with the result that any future appreciation (or depreciation) in
the value of the shares of Common Stock granted will be taxed as capital gain
(or loss) upon a subsequent sale of the shares. However, if a participant makes
a Section 83(b) election and later forfeits the shares of Common Stock subject
to the election, he or she does not receive a deduction as a result of such
forfeiture.
If a participant does not make a Section 83(b) election with respect to
restricted shares, he or she recognizes compensation income on the date the
restrictions lapse equal to the fair market value of the shares on that date,
and his or her holding period begins on the day after that date. Upon a later
sale or exchange of the shares, the participant recognizes capital gain or loss
(long-term or short-term depending upon whether he has held the shares for more
than one year) equal to the difference between the proceeds received and the
value of the shares on the date the restrictions lapsed. Any dividends a
participant receives with respect to shares, which are subject to restrictions
and with respect to which no Section 83(b) election has been made, are treated
as additional compensation income.
Any compensation income a participant recognizes from a grant of restricted
stock is subject to income and employment tax withholding. The Company is
entitled to an income tax deduction for any compensation income taxed to the
participant.
8
<PAGE> 11
Performance Awards. The grant of a performance award does not generate
taxable income to the participant or an income tax deduction to the Company. Any
cash and the fair market value of any shares of Common Stock received as payment
in respect of a performance award constitute compensation income to the
participant. The participant's income is subject to income and employment tax
withholding. The Company is entitled to an income tax deduction corresponding to
the compensation income recognized by the participant.
Payment of Withholding Taxes. The Company has the power to withhold or to
require a participant to remit to the Company, an amount sufficient to satisfy
any Federal, state, local or foreign withholding tax requirements on any grant
or exercise made pursuant to the 1997 Plan. However, to the extent permissible
under applicable tax, securities and other laws, the Compensation Committee may,
in its sole discretion, permit the participant to satisfy a tax withholding
requirement by delivering to the Company shares of Common Stock previously owned
by the participant, or by directing the Company to apply shares of Common Stock
to which the participant it entitled as a result of the exercise of any option
or the lapse of a period of restriction, to satisfy such requirement.
REQUIRED VOTE
Approval of the increase in shares available under the 1997 Plan requires
the affirmative vote of the holders of a majority of the outstanding shares of
Common Stock present and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
PROPOSAL 3
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee has recommended and the Board has selected Deloitte &
Touche LLP to act as the Company's independent auditors. Deloitte & Touche LLP
served as the Company's auditors for the 1999 fiscal year. Representatives of
Deloitte & Touche LLP will attend the 2000 Annual Meeting. They will have the
opportunity to make a statement, if they desire to do so, and will be available
to respond to appropriate questions.
REQUIRED VOTE
Ratification of the selection of Deloitte & Touche LLP requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock present and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 3.
STOCK OWNERSHIP
The following table shows beneficial ownership of the Company's Common
Stock and warrants to obtain Common Stock as of December 20, 1999 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
9
<PAGE> 12
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.
<TABLE>
<CAPTION>
WARRANTS TO OBTAIN
COMMON STOCK COMMON STOCK
------------------------ --------------------------
NUMBER PERCENT OF NUMBER PERCENT OF
OF SHARES OUTSTANDING* OF WARRANTS OUTSTANDING*
--------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Marvin A. Pomerantz and MAG(1)................... 4,729,942 8.4 0 --
4700 Westown Parkway
West Des Moines, IA 50625
M. D. Sass Associates and M. D. Sass Investors
Services, Inc.(2)................................ 3,076,113 5.6 0 --
1185 Avenue of the Americas
New York, NY 10036
Mellon Bank Corporation(3)....................... 3,010,217 5.5 0 --
One Mellon Bank Center
Pittsburgh, PA 15258
Warren J. Hayford(4)............................. 1,800,202 3.2 0 --
Mary Sue Coleman................................. 5,342 -- 0 --
Harve A. Ferrill................................. 27,334 -- 0 --
John E. Goodenow(5).............................. 46,334 -- 0 --
David B. Hawkins................................. 23,234 -- 0 --
Charles S. Johnson............................... 2,334 -- 0 --
Jerry W. Kolb.................................... 10,000 -- 0
Ralph L. MacDonald Jr. .......................... 42,334 -- 0 --
Thomas H. Stoner................................. 18,534 -- 0 --
Dale E. Stahl.................................... 610,048 1.1 0 --
Daniel P. Casey(6)............................... 461,510 -- 0 --
Lawrence G. Rogna(7)............................. 293,700 -- 0 --
All officers and directors as a group (20
persons)(8)...................................... 8,630,312 15.3 0 --
</TABLE>
- ---------------
* Percentages less than 1 percent have been omitted.
(1) Mr. Pomerantz, his wife and trusts for the benefit of their children own
MAG. Mr. Pomerantz does not own directly any of these shares except for
40,000 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) Shares shown as beneficially owned by M. D. Sass Associates, Inc. and M. D.
Sass Investors Services, Inc. (collectively "M. D. Sass") are based on a
Schedule 13G filed on February 3, 1997.
(3) Shares shown as beneficially owned by Mellon Bank Corporation ("Mellon
Bank") are based on a Schedule 13G filed on January 29, 1999. Mellon Bank
has sole power to vote or direct the vote of 2,759,617 shares, sole power to
dispose or direct the disposition of 2,780,717 shares and shared power to
dispose or direct the disposition of 229,500 shares.
(4) Shares shown as beneficially owned by Mr. Hayford include 305,686 shares
owned directly by trusts for the benefit of his children and grandchildren,
218,496 owned directly by his wife and 50,000 owned directly by a charitable
family foundation. Mr. Hayford disclaims beneficial ownership of shares held
by the trusts, his wife and the foundation.
(5) 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
10
<PAGE> 13
(6) Shares shown as beneficially owned by Mr. Casey include 12,360 owned
directly by his wife and 28,500 owned directly by his children. Mr. Casey
disclaims beneficial ownership of such shares.
(7) Shares shown as beneficially owned by Mr. Rogna include 3,000 owned directly
by his wife and 40,000 owned directly by a trust. Mr. Rogna disclaims
beneficial ownership of such shares.
(8) The number and percentage of shares owned by the named individuals and group
include 1,489,039 shares subject to stock options exercisable currently or
within 60 days of December 20, 1999.
The following table shows 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, 1999, 1998 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
RESTRICTED
OTHER ANNUAL STOCK LTIP ALL OTHER
FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS/ PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) SARS (#) ($) ($)(1)(2)
- --------------------------- ------ ------ ----- ------------ ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marvin A. Pomerantz........ 1999 750,000 0 0 0 0 0 25,700
(Chairman and Chief 1998 750,000 0 0 0 300,000 0 21,600
Executive Officer) 1997 712,500 0 0 0 0 0 53,500
Dale E. Stahl.............. 1999 429,400 0 0 0 0 0 15,200
(President and Chief 1998 409,400 0 0 0 333,400 0 11,400
Operating Officer) 1997 389,400 0 0 0 0 0 40,100
Daniel P. Casey............ 1999 393,300 0 0 0 0 0 14,200
(Executive Vice 1998 375,600 0 0 0 333,400 0 10,500
President) 1997 360,600 0 0 0 0 0 38,400
Lawrence G. Rogna(3)....... 1999 266,900 0 0 0 0 0 10,500
(Senior Vice President) 1998 253,400 0 0 0 166,700 0 6,900
1997 241,900 0 0 0 0 0 74,400
</TABLE>
- ---------------
(1) Includes for each of 1999, 1998 and 1997 employer contributions to the
Company's 401(k) Plan on behalf of Messrs. Pomerantz, Stahl, Casey and
Rogna, of $8,000, 4,800 and $4,500, respectively.
(2) Includes for 1999, 1998 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 $17,700, $16,800
and $49,000; $7,200, $6,600 and $35,600; $6,200, $5,700 and $33,900; and
$2,500, $2,100 and $16,900, respectively.
(3) Includes for 1997 principal and interest of $53,000 on a relocation loan
that was forgiven.
11
<PAGE> 14
OPTION GRANTS IN LAST FISCAL YEAR
No stock options or SARs were granted to any of the named executive
officers in fiscal 1999 under any stock option plan sponsored by the Company.
The following table shows exercise of options by the named executive
officers in fiscal 1999 and the value of options held by the named executive
officers at the end of fiscal 1999:
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES ACQUIRED FY-END(#) FY-END($)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE(1) UNEXERCISABLE(2)
---- --------------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Marvin A. Pomerantz.................. 0 0 100,000/200,000 0/0
Dale E. Stahl........................ 0 0 333,400/ 80,000 314,300/10,000
Daniel P. Casey...................... 0 0 333,400/ 80,000 314,300/10,000
Lawrence G. Rogna.................... 0 0 176,700/ 40,000 190,900/ 5,000
</TABLE>
- ---------------
(1) Options only are included. No SAR grants have been made.
(2) The closing price of the Common Stock on September 30, 1999 was $7.13.
EXECUTIVE OFFICERS
MARVIN A. POMERANTZ. See Director Nominees for Election at the 2000 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 a director and member of the
Compensation Committee of AMCOL International Corporation, a diversified
specialty mineral, chemical and environmental company. Age 52.
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.
("Mid-America"), 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 57.
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 53.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Mr. Pomerantz for the period
June 1, 1997 through December 31, 2000. It provides for an annual base salary of
no less than $750,000 and participation in the Shareholder Value Plan, a
long-term incentive plan designed to tie Mr. Pomerantz's compensation to
increases in shareholder value, and in all of the Company's salaried employee
benefit plans. Under the agreement, Mr. Pomerantz became eligible to receive
stock option or restricted stock grants beginning
12
<PAGE> 15
January 1, 1998, but does not participate in the Company's Management Incentive
Plan. The employment agreement provides for supplemental retirement payments
commencing on the date of retirement equal to 50 percent of 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. If Mr. Pomerantz's employment terminates because of his disability, he
will receive his base salary for 12 months. If Mr. Pomerantz's employment
terminates because of his death, his estate will receive his then accrued and
unpaid base salary. If 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 receive his full
compensation for the balance of the term of the employment agreement. "Serious
Misconduct" means misappropriation of Company funds, commission of a felony,
willful disregard for 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. "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.
The Company has an employment letter agreement for an indefinite term with
each of Mr. Stahl at an annual salary of $440,000 effective January 2000, Mr.
Casey, at an annual salary of $400,000 effective January 2000 and Mr. Rogna, at
an annual salary of $267,000 effective January 2000.
If any of Messrs. Stahl, Casey or Rogna becomes disabled and the Company
terminates his employment, he will receive his full base salary and benefits for
12 months. If the Company terminates employment for any other reason, the
executive will be entitled to his full base salary and benefits for the 24
months following such termination, except that the final 12 months of payments
will be reduced by any amount received from other employment. Each of Messrs.
Stahl, Casey and Rogna participated in the Shareholder Value Plan until December
31, 1997 and participates in the Company's salaried employee benefit plans.
Each of Messrs. Stahl, Casey and Rogna has a severance agreement with the
Company. Under the severance agreement, if he is terminated within 24 months
after a change in control of the Company, the executive will receive a severance
payment of two times the sum of his base salary plus his target bonus under 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. The Company also reimburses any excise tax imposed
on severance payments.
Each of Messrs. Stahl, Casey and Rogna participates in the Supplemental
Executive Retirement Plan ("SERP"). The SERP provides supplemental annual
retirement payments commencing the later of age 55 or the date of retirement of
up to 60 percent of average base salary and bonus, excluding awards under the
Shareholder Value Plan, for the four highest of the 10 years prior to
retirement, less primary Social Security benefits and any amounts payable under
the Company's pension plan. Supplemental payments range from 35 percent (at age
55) to 60 percent (at age 65) of 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 1999
at a cost of approximately $154,500. Fees for these services are determined on
the basis of costs incurred and the fair market value of the office space. The
Company expects MAG and such subsidiaries to provide office space and such
services to the Company in the future. In February 1998 the Company loaned Mr.
Stahl $505,200 to pay the exercise price and taxes on a stock option. The option
would have expired in March 1998. The loan bears interest at the Applicable
Federal Rate of interest with principal and accrued interest payable on December
31, 2000.
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.
The Company has entered into employment agreements with Messrs. Pomerantz,
Stahl, Casey and Rogna. See "Employment Agreements."
13
<PAGE> 16
PENSION PLAN
The Gaylord Container Retirement Plan ("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) Final average earnings 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 table do not reflect the Social Security offset
in accordance with the Pension Plan benefit formula.
(2) As of September 30, 1999, the named executive officers had been credited
with the following years of service: Mr. Pomerantz, 11 years; Mr. Stahl, 11
years; Mr. Casey, 12 years; and Mr. Rogna, 10 years.
(3) For the 1999 Pension Plan year, the amount of compensation in the
calculation of retirement benefits for any participant is limited to
$160,000 subject to future increases based on cost-of-living adjustments
implemented by the Department of the 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 $716,000 $330,000, $302,000 and
$176,000 respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The members of the Company's Compensation Committee are Messrs. Ferrill,
Goodenow, Johnson, Kolb, MacDonald and Stoner. No officers or former officers of
the Company serve on the Compensation Committee.
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.
14
<PAGE> 17
The Compensation Committee of the Board of Directors has submitted the
following:
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 Messrs. Stahl, Casey and Rogna were
increased in fiscal 1999 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. Messrs. Stahl, Casey and Rogna received no payouts under this plan
for fiscal 1999. Mr. Pomerantz does not participate in the Management Incentive
Plan. Targets have been established for fiscal 2000 based on the Company's
earnings before interest, income taxes, depreciation and amortization.
During fiscal year 1998, the Compensation Committee considered a series of
factors contributing to the possibility of increased turnover of critical
executive talent. In recognizing the overall performance of the industry, the
very high demand for executive talent and the cost to replace key leaders, the
Compensation Committee recommended, and the Board approved, a program designed
to retain key senior managers that will compensate each participant two times
his or her target incentive if the individual remains with the
15
<PAGE> 18
Company as of December 31, 2000 and is performing in an acceptable manner.
Messrs. Stahl, Casey and Rogna are participants in this program.
Long-Term Incentive
The Company currently maintains one stock-based plan pursuant to which
non-qualified stock options may be granted: the 1997 Plan. The 1997 Plan also
permits 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 tied 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 expired on
December 31, 1997. None of Messrs. Pomerantz, Stahl, Casey or Rogna have
received an award under this Plan based on Year-End Share Value since calendar
1995.
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 was due to expire 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. The Board and the shareholders approved this
recommendation in May 1997 and February 1998, respectively.
The Shareholder Value Plan was not extended for Messrs. Stahl, Casey or
Rogna beyond December 31, 1997. 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
authorized a onetime grant of stock options in amounts which was directly
equivalent to each individual's degree of participation in the Shareholder Value
Plan. These grants, effective January 15, 1998, had an exercise price of $8.85
per share. The amounts of these grants were 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.
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 1999 or 2000. 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.
Chief Executive Officer Compensation
After extensive review of competitive data and all other pertinent factors,
the Compensation Committee recommended and the Board approved in May 1997 a new
employment agreement with Mr. Pomerantz effective June 1, 1997 through December
31, 2000.
16
<PAGE> 19
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 as well as Shareholders approved the extension of the Shareholder Value
Plan, so that as amended it will expire on December 31, 2000 concurrent with the
expiration of Mr. Pomerantz's 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 1997. In
order to provide a competitive opportunity for the remainder of the new
employment agreement, the Compensation Committee authorized a grant of 300,000
stock options to Mr. Pomerantz effective January 15, 1998. The exercise price
was $8.85 per share.
In recognition of continued leadership and after a review of competitive
data for similar positions and total compensation packages, the Compensation
Committee recommended and the Board approved an increase in base salary for Mr.
Pomerantz to $825,000 effective January 1, 2000. Mr. Pomerantz's base salary has
been $750,000 since January 1, 1997.
Ralph L. MacDonald, Jr., Chairman
Harve A. Ferrill, member
John E. Goodenow, member
Charles S. Johnson, member
Jerry W. Kolb, member
Thomas H. Stoner, member
17
<PAGE> 20
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 past five years.
The graph assumes an investment in the Company's Common Stock and each index of
$100 on October 1, 1994 and that all dividends are reinvested. The Peer Group
index is comprised of nine 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 PaperBoard (through the date it was
acquired), P.H.Glatfelter, International Paper, Mead and Westvaco.
FIVE YEAR CUMULATIVE TOTAL STOCKHOLDER RETURNS
[Line Graph]
<TABLE>
<CAPTION>
GAYLORD CONTAINER S&P 500 PEER GROUP
----------------- ------- ----------
<S> <C> <C> <C>
9/95 110.29 129.74 121.09
9/96 86.76 156.12 116.41
9/97 100.00 219.27 150.45
9/98 38.24 239.11 115.16
9/99 83.82 305.59 137.40
</TABLE>
FINANCIAL STATEMENTS
The Company's 1999 Annual Report accompanies this Proxy Statement. You may
receive without charge a copy of the Company's 1999 Annual Report on Form 10-K
by writing to the Company, 500 Lake Cook Road, Suite 400, Deerfield, IL 60015,
Attention: Investor Relations. You may also request financial information by
visiting the Company's web site: www.gaylordcontainer.com.
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
18
<PAGE> 21
representations from the Company's executive officers and directors, the Company
believes that during fiscal 1999 all filing requirements applicable to executive
officers and directors were met.
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, the proxies will be voted on such
matters in accordance with the judgment of the proxy holders.
PROPOSALS BY STOCKHOLDERS
The Company must receive stockholder proposals intended for inclusion in
the proxy statement for the 2001 Annual Meeting no later than September 12,
2000.
We encourage you to vote and to attend the Annual Meeting. Directors,
officers and a small number of Company employees may solicit proxies personally
or by mail, telephone or otherwise, but they will not receive separate
compensation for their services. Brokerage firms, banks, fiduciaries, voting
trustees or other nominees will be asked to forward the soliciting materials to
beneficial owners. The entire cost of the Board's solicitation, including
approximately $10,000 for the services of a proxy solicitor, will be borne by
the Company.
By Order of the Board of Directors
David F. Tanaka
Secretary
19
<PAGE> 22
APPENDIX A
AUDIT COMMITTEE CHARTER
All members of the Audit Committee shall be independent Directors. The
Audit Committee shall be chaired by an independent Director appointed by the
Board.
The function of the Audit Committee shall be to provide for effective
oversight of the financial reporting process, the business risk process and
adequacy of internal controls, relationships with external and internal
auditors, financial compliance issues, and to exercise the following powers and
duties with respect to the following matters involving Gaylord Container
Corporation and, unless otherwise specified, any of its direct or indirect
subsidiaries (together, "the Corporation"):
1. Review and approval of the Corporation's annual financial
statements, annual reports, registration statements, and material
amendments to any of them, as filed with the U.S. Securities and Exchange
Commission, and recommendations to the Board regarding the Board's
execution of them;
2. Such review of the annual financial statements, annual reports and
registration statements of the Corporation's direct or indirect
subsidiaries as in the Audit Committee's judgment is appropriate in order
to fulfill its responsibilities;
3. Review of the Corporation's programs for compliance with applicable
financial disclosure requirements;
4. Review of the auditing of the Corporation's financial statements
with the independent public accountants, including the plan, fees and the
results of their auditing engagements;
5. Review of the non-audit professional services provided by the
Corporation's independent public accountants and related fees, considering
the possible effect they have on the independence of such accountants;
6. Recommendations to the Board regarding the engagement of
independent public accountants;
7. Review of the Corporation's processes to maintain an adequate
system of internal controls;
8. Review of the scope and results of the Corporation's internal audit
plans and procedures;
9. Review of the Corporation's private aircraft travel policies;
10. Review of travel and entertainment expenses reported by the
executive officers of the Corporation;
11. Direction and supervision of investigations into matters within
the scope of the Audit Committee's duties;
12. Recommendation to the Board regarding any proposal received from
any stockholder concerning any of the foregoing matters which the
stockholder proposes to present for action by the Corporation's
stockholders; and
13. Such other duties and responsibilities as may be assigned to the
Audit Committee by the Board.
In carrying out these responsibilities, the Committee shall have full
access to the independent public accountants, the internal auditors, the general
counsel, any of the Corporation's non-employee attorneys and advisors, and
executive and financial management in scheduled joint sessions or private
meetings as in its judgment it deems appropriate. Similarly, the Corporation's
independent public accountants, internal auditors, general counsel and executive
and financial management will have full access to the Committee and to the Board
of Directors and each is responsible for bringing before this Committee or its
Chair in a timely manner any matter he/she feels appropriate to the discharge of
the Committee's responsibility.
<PAGE> 23
TO VOTE BY MAIL, PLEASE DETACH THE PROXY CARD HERE
- --------------------------------------------------------------------------------
GAYLORD CONTAINER CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS - FEBRUARY 8, 2000
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
P undersigned's name, at the Annual Meeting of Stockholders of said
corporation to be held at 520 Lake Cook Road, Deerfield, Illinois 60015, on
R February 8, 2000 at 10:00 a.m. Chicago time, upon those matters as
described in the Proxy Statement for the Annual Meeting and such other
O matters as may properly come before such meeting or any adjournment or
adjournments thereof.
X
If any other business is transacted at the Annual Meeting of Stockholders,
Y this Proxy shall be voted in accordance with the best judgment of the
appointed attorneys and proxies.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE COMMENTS?
----------------------------- -----------------------------------
----------------------------- -----------------------------------
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE OR
CAST YOUR VOTE BY TELEPHONE OR VIA THE INTERNET.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE [SEE REVERSE SIDE]
<PAGE> 24
INSTRUCTIONS FOR VOTING YOUR PROXY
Gaylord Container Corporation is now offering stockholders of record three
alternative ways of voting your proxies:
- - BY TELEPHONE (using a touch-tone telephone) - THROUGH THE INTERNET (using a
browser) - BY MAIL (traditional method)
Your telephone or Internet vote authorizes the named proxies to vote your
shares in the same manner as if you had returned your proxy card. We encourage
you to use these cost effective and convenient ways of voting, 24 hours a day,
7 days a week.
TELEPHONE VOTING Available only until 5:00 p.m. Eastern time on February 7,
2000
- This method of voting is available for residents of the U.S. and Canada
- On a touch tone telephone, call TOLL FREE 1-800-722-4072, 24 hours a day,
7 days a week
- You will be asked to enter ONLY the CONTROL NUMBER shown below
- Have your proxy card ready, then follow the prerecorded instructions
- Your vote will be confirmed and cast as you directed
INTERNET VOTING Available only until 5:00 p.m. Eastern time on February 7, 2000
- Visit our Internet voting Website at http://cybervote.georgeson.com
- Enter the COMPANY NUMBER AND CONTROL NUMBER shown below and follow the
instructions on your screen
- You will incur only your usual Internet charges.
VOTING BY MAIL
- Simply mark, sign and date your proxy card and return it in the
postage-paid envelope.
- IF YOU ARE VOTING BY TELEPHONE OR THE INTERNET, PLEASE DO NOT MAIL YOUR
PROXY CARD.
COMPANY NUMBER CONTROL NUMBER
TO VOTE BY MAIL, PLEASE DETACH THE PROXY CARD HERE
- --------------------------------------------------------------------------------
[X]PLEASE MARK VOTES AS IN THIS EXAMPLE
- -------------------------------------------------------------------------------
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.
THE BOARD RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS DESCRIBED IN
THE PROXY STATEMENT FOR THE MEETING.
- -------------------------------------------------------------------------------
<TABLE>
<S><C>
1. Election of Directors: Mary Sue Coleman, Harve A. Ferrill, 2. Increase in shares
John E. Goodenow, David B. Hawkins, Warren J. Hayford, available under the FOR AGAINST ABSTAIN
Charles S. Johnson, Jerry W. Kolb, Ralph L. MacDonald, Jr., FOR WITHHELD 1997 Plan. [ ] [ ] [ ]
Marvin A. Pomerantz, and Thomas H. Stoner. [ ] [ ]
(Instruction: To withhold authority to vote for any 3. Ratify the appointment
individual nominee, write that nominee's name here. of Deloitte & Touche LLP
as the Company's FOR AGAINST ABSTAIN
independent auditors. [ ] [ ] [ ]
- ---------------------------------------------------------
DATE:
-----------------------------,2000
---------------------------------------
(Signature of Stockholder)
---------------------------------------
(Signature of Stockholder)
Please sign your name exactly as it
appears on this card. If acting as
attorney, executor, or in dealer
representative capacity, please
sign name and title. If stock is
held jointly, each joint owner should
sign.
</TABLE>
