[Logo]
JEFFERSON SMURFIT CORPORATION
8182 Maryland Avenue
St. Louis, MO 63105
April 2, 1998
Dear Stockholder:
You are cordially invited to attend our Company's 1998 Annual
Meeting of Stockholders, which will be held on Thursday, May 7, 1998,
at 1:00 p.m. local time at the Renaissance St. Louis Hotel-Airport,
9801 Natural Bridge Road, St. Louis, Missouri 63134. The formal Notice
of Annual Meeting of Stockholders and Proxy Statement accompanying
this letter describe the business to be acted upon at the meeting.
Your vote is important and your shares should be represented at
the meeting whether or not you are personally able to attend.
Accordingly, you are requested to mark, sign, date and return the
accompanying proxy promptly.
On behalf of the Board of Directors, thank you for your continued
support of Jefferson Smurfit Corporation.
Sincerely,
MICHAEL W. J. SMURFIT
Chairman of the Board
JEFFERSON SMURFIT CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 7, 1998
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of
Jefferson Smurfit Corporation, a Delaware corporation (the 'Company'), will be
held on Thursday, May 7, 1998, at 1:00 p.m. local time at the Renaissance St.
Louis Hotel-Airport, 9801 Natural Bridge Road, St. Louis, Missouri 63134 to
act upon the following matters which are described more fully in the
accompanying Proxy Statement:
1. The election of three directors for terms of office expiring at the
annual meeting of stockholders in 2001;
2. The ratification of the appointment of Ernst & Young LLP as
independent auditors of the Company for 1998; and
3. Such other business as may properly come before the meeting and/or
any adjournment thereof.
All stockholders of record at the close of business on March 9, 1998 are
entitled to notice of, and to vote at, the Annual Meeting and/or any
adjournment thereof.
The Board of Directors of the Company has authorized the solicitation of
proxies. Unless otherwise directed, the proxies will be voted FOR the election
of the nominees listed in the attached Proxy Statement to be members of the
Board of Directors of the Company; FOR the ratification of the appointment of
independent auditors of the Company for 1998; and, on any other business that
may properly come before the Annual Meeting, as the named proxies in their
best judgment shall decide.
Any stockholder submitting a proxy may revoke such proxy at any time prior
to its exercise by notifying Michael E. Tierney, Secretary of the Company, in
writing at 8182 Maryland Avenue, St. Louis, Missouri 63105, prior to the
Annual Meeting, and if you attend the Annual Meeting you may revoke your proxy
if previously submitted and vote in person by notifying the Secretary of the
Company at the Annual Meeting.
By Order of the Board of Directors
MICHAEL E. TIERNEY
Secretary
St. Louis, Missouri
April 2, 1998
JEFFERSON SMURFIT CORPORATION
--------------------------
PROXY STATEMENT
--------------------------
FOR 1998 ANNUAL MEETING OF STOCKHOLDERS
General Information
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Jefferson Smurfit Corporation, a Delaware
corporation (the 'Company'), 8182 Maryland Avenue, St. Louis, Missouri 63105,
for use at the 1998 Annual Meeting of Stockholders to be held on Thursday, May
7, 1998 (the 'Annual Meeting'). The Board of Directors of the Company urges
that your proxy be executed and returned promptly in the enclosed envelope.
Any stockholder submitting a proxy may revoke such proxy at any time prior to
its exercise by notifying Michael E. Tierney, Secretary of the Company, in
writing, prior to the Annual Meeting. Any stockholder attending the Annual
Meeting may revoke his proxy and vote personally by notifying the Secretary of
the Company at the Annual Meeting. Only stockholders of record at the close of
business on March 9, 1998 will be entitled to notice of, and to vote at, the
Annual Meeting and/or any adjournment thereof. At the close of business on
March 9, 1998, the Company had 110,996,794 outstanding shares of common stock
(the 'Common Stock'). Each share of Common Stock entitles the holder thereof
to one vote.
If the accompanying proxy card is signed and returned, the shares
represented thereby will be voted in accordance with the directions on the
proxy card. Unless a stockholder specifies otherwise therein, the proxy will
be voted in favor of the election of the three nominees named below to the
Board of Directors of the Company and in favor of ratifying the appointment of
Ernst & Young LLP as independent auditors for the Company for 1998. The
presence in person or by proxy of a majority of the voting power represented
by outstanding shares of the Common Stock (55,498,398 shares) will constitute
a quorum for the transaction of business at the Annual Meeting. Directors will
be elected by a plurality of the voting power represented at the meeting and
the ratification of the appointment of independent auditors will be determined
by the affirmative vote of the majority of the voting power represented and
entitled to vote at the meeting. In the election of directors, abstentions and
broker non-votes will not affect the outcome except in determining the
presence of a quorum and in the sense that they do not contribute to reaching
the number of votes required for approval. An instruction to 'abstain' from
voting on the proposal to ratify the appointment of independent auditors will
be treated as shares present and will have the same effect as a vote against
the proposal. Broker non-votes will not be considered 'entitled to vote' on
the proposal to ratify the appointment of independent auditors; therefore,
broker non-votes will have no effect on the number of affirmative votes
required to adopt such proposal.
As noted under the 'Principal Stockholders' section herein, as of the
close of business on March 9, 1998, Smurfit International B.V., an entity
organized under the laws of The Netherlands ('SIBV'), and certain of its
subsidiaries were the owner of approximately 46.5% of the outstanding Common
Stock and The Morgan Stanley Leveraged Equity Fund II, L.P. ('MSLEF II') and
certain related entities (together, the 'MSLEF II Associated Entities') were
the owner of approximately 28.7% of the outstanding Common Stock. SIBV and the
MSLEF II Associated Entities, acting together, by reason of their ownership of
Common Stock (representing approximately 75.2%, in the aggregate, of the
outstanding Common Stock), have sufficient votes, without any additional
votes, to elect the three nominees named herein, to ratify the appointment of
independent auditors and to approve or defeat any other action or proposal to
be taken or made at the Annual Meeting which requires the approval of a
plurality or a majority of the votes represented by outstanding shares of the
Common Stock. SIBV and the MSLEF II Associated Entities, which are parties to
a Stockholders Agreement dated May 3, 1994 and amended January 13, 1997 (the
'Stockholders Agreement'), have advised the Company that they are obligated to
vote their respective shares of Common Stock FOR the three nominees of the
Board of Directors named herein, and that they intend to vote their respective
shares of stock FOR the ratification of the appointment of independent
auditors. SIBV is an indirect wholly-owned subsidiary of
Jefferson Smurfit Group plc, a public corporation organized under the laws of
the Republic of Ireland ('JS Group'), which, through its subsidiaries, is
principally an integrated manufacturer and converter of paper and board. MSLEF
II is a Delaware limited partnership investment fund formed to make
investments in industrial and other companies. See 'Principal Stockholders'
and 'Certain Transactions.'
This Proxy Statement and the enclosed proxy card are being mailed to the
stockholders of the Company on or about April 2, 1998.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of ten directors.
The directors are classified into three groups: three directors having terms
expiring at the forthcoming Annual Meeting; three directors having terms
expiring in 1999; and four directors having terms expiring in 2000.
Set forth below is information concerning the three nominees for
directorships having terms expiring at the forthcoming 1998 Annual Meeting.
Leigh J. Abramson, Richard W. Graham and G. Thompson Hutton are the nominees
of the Board of Directors of the Company to fill these directorships. Such
nominations were made pursuant to the terms of the Stockholders Agreement. For
purposes of the Stockholders Agreement, Leigh J. Abramson and G. Thompson
Hutton have been designated as nominees by MSLEF II, and Richard W. Graham has
been designated as a nominee by SIBV. The Board of Directors of the Company
recommends a vote FOR these three nominees. If elected, each nominee will
serve until the annual election of directors in the year 2001 or until his
successor is duly elected and qualified, or until his earlier death,
resignation or removal. Leigh J. Abramson, Richard W. Graham and G. Thompson
Hutton are presently members of the Board of Directors of the Company and have
been approved unanimously by the Board of Directors of the Company for
re-election. If any of the nominees are unavailable for election, an event
which the Board of Directors of the Company does not presently anticipate, the
persons named in the enclosed proxy intend to vote the proxies solicited
hereby FOR the election of such other nominee or nominees, if any, as they may
select in accordance with the terms of the Stockholders Agreement. Also set
forth below is information concerning directors whose terms are not expiring
this year. See 'Certain Transactions-Stockholders Agreement.'
Nominees for Directors to be Elected at the 1998 Annual Meeting for Terms
Expiring in 2001
<TABLE>
<CAPTION>
Name and Year
First Elected
Director Principal Occupation and Other Information
- ------------------------------------ -----------------------------------------------------
<S> <C>
Leigh J. Abramson
1997................................ Mr. Abramson, 29, joined Morgan Stanley & Co.
Incorporated ('MS&CO.') in 1990 and is a Vice
President in MS&CO.'s Merchant Banking Division. He
is a Vice President of Morgan Stanley Capital
Partners III, Inc. ('MSCP III, Inc.') and Morgan
Stanley Leveraged Equity Fund II, Inc. ('MSLEF II,
Inc.'), which is the general partner of The Morgan
Stanley Leveraged Equity Fund, L.P. ('MSLEF II').
Mr. Abramson also serves as a Director of PageMart
Wireless, Inc. and Silgan Holdings Inc.
Richard W. Graham
1997................................ Mr. Graham, 63, has been President and Chief
Executive Officer of the Company since January 1997.
He was President of the Company from July 1996 to
December 1996. He served as Senior Vice President
from February 1994 to July 1996. Prior to that, he
held various positions in the Folding Carton and
Boxboard Mill Division, including Vice President
and General Manager from February 1991 to January
1994. Mr. Graham also serves as a Director of
Mercantile Bank of St. Louis N.A.
2
Name and Year
First Elected
Director Principal Occupation and Other Information
- ------------------------------------ -----------------------------------------------------
G. Thompson Hutton
1994................................ Mr. Hutton, 42, has been President and Chief
Executive Officer of Risk Management Solutions, Inc.,
an information services company based in Menlo
Park, California, since 1991. Prior to that, he was
a management consultant with McKinsey & Company,
Inc. from 1986 to 1991. He also serves as a Trustee
of Colorado Outward Bound School.
Members of the Board of Directors
Continuing in Office with Terms Expiring in 1999
Name and Year
First Elected
Director Principal Occupation and Other Information
- ------------------------------------ -----------------------------------------------------
Alan E. Goldberg
1989................................ Mr. Goldberg, 43, is head of MS&CO.'s Private Equity
Group and has been a Managing Director of MS&CO.
since 1988. Mr. Goldberg is a Managing Director of
MSLEF II, Inc. and MSCP III, Inc. Mr. Goldberg also
serves as a Director of CIMIC Holdings Limited, CAT
Limited, Catalytica, Inc., Hamilton Services
Limited, Amerin Corporation and Amerin Guaranty
Corporation, Direct Response Corporation and
several private companies.
Howard E. Kilroy
1989................................ Mr. Kilroy, 62, was Chief Operations Director of JS
Group from 1978 until March 1995 and President of JS
Group from October 1986 until March 1995. He was a
member of the Supervisory Board of Smurfit
International B.V. ('SIBV') from January 1978 to
January 1992. He was Senior Vice President of the
Company for over 5 years. He retired from his
executive positions with JS Group and the Company
at the end of March 1995, but remains a Director of
JS Group and the Company. In addition, he is
Governor (Chairman) of Bank of Ireland and a
Director of CRH plc.
Thomas A. Reynolds, III
1997................................ Mr. Reynolds, 45, has been a Partner since 1984 with
Winston & Strawn, a law firm that regularly
represents the Company on numerous matters. Mr.
Reynolds is an adjunct faculty member in trial
advocacy at Northwestern University School of Law.
He also serves as a Director of Georgetown
University.
Members of the Board of Directors
Continuing in Office with Terms Expiring in 2000
Name and Year
First Elected
Director Principal Occupation and Other Information
- ------------------------------------ -----------------------------------------------------
Michael M. Janson
1997................................ Mr. Janson, 50, joined MS&CO. in 1987 and is a
Managing Director of MS&CO. and MSCP III. Before
joining MS&CO.'s Merchant Banking Division in 1997,
he was a Managing Director of MS&CO.'s High Yield
Capital Markets Department. Mr. Janson also serves
as a Director of American Color Graphics, Inc.
3
Name and Year
First Elected
Director Principal Occupation and Other Information
- ------------------------------------ -----------------------------------------------------
Michael C. Hoffman
1998................................ Mr. Hoffman, 35, joined MS&CO. in 1986 and is a
Principal of MS&CO., MSLEF II, Inc. and MSCP III,
Inc. Mr. Hoffman has been a member of the MS
Private Equity Group since 1989 and is a member of
MS&CO.'s bank steering committee.
Michael W. J. Smurfit
1989................................ Dr. Smurfit, 61, has been Chairman and Chief
Executive Officer of JS Group since 1977. Dr. Smurfit
has been Chairman of the Board of the Company since
1989. He was Chief Executive Officer of the Company
prior to July 1990.
James E. Terrill
1994................................ Mr. Terrill, 64, was Chief Executive Officer from
July 1996 to December 1996 and President and Chief
Executive Officer from February 1994 to July 1996.
He served as Executive Vice President -- Operations
from August 1990 to February 1994. Mr. Terrill also
served as President of Smurfit Newsprint
Corporation, a wholly-owned subsidiary of the
Company, from February 1986 to February 1993.
</TABLE>
BOARD AND BOARD COMMITTEE MEETINGS,
COMMITTEE FUNCTIONS AND COMPOSITION
Each non-employee director receives as compensation for serving on the
Board of Directors an annual fee of $35,000, a fee of $2,000 for attendance at
each meeting in excess of four meetings per year and travel expenses in
connection with attendance at such meetings. Directors who are employees of
the Company do not receive any additional compensation by reason of their
membership on, or attendance at, meetings of the Board. The Board of Directors
held four meetings in 1997.
The Board of Directors has appointed an Audit Committee, a Compensation
Committee and an Appointment Committee. The number of meetings held by these
committees, their functions and the members of the Board serving on such
committees are set forth below.
The Audit Committee is responsible for making recommendations to the Board
of Directors regarding the independent auditors to be appointed for the
Company, meeting with the independent auditors, the Director of internal audit
and other corporate officers to review matters relating to corporate financial
reporting and accounting procedures and policies, adequacy of financial,
accounting and operating controls and the scope of the audits of the
independent auditors and internal auditors and reviewing and reporting on the
results of such audits to the Board of Directors. The members of the Audit
Committee are Messrs. Abramson, Hutton, Kilroy, and Reynolds. The Audit
Committee held two meetings during 1997.
The Compensation Committee is responsible for administering stock-based
compensation programs (including the Company's Amended and Restated 1992 Stock
Option Plan and the Management Incentive Plan) for all participants in such
programs and determining other compensation (including fringe benefits) of the
Chief Financial Officer of the Company, officers and employees of the Company
who are directors of the Company (other than the Chief Executive Officer) and
all officers and employees of the Company whose principal employer is JS Group
(including Dr. Smurfit). The Board of Directors is responsible for approving
awards under any nonstock-based programs. The members of the Compensation
Committee are Messrs. Abramson, Hoffman and Goldberg. Mr. Hoffman succeeded
Mr. Donald P. Brennan who had been on the Compensation Committee until his
resignation on February 26, 1998. See 'Certain Transactions -- Stockholders
Agreement.' The Compensation Committee held one meeting during 1997.
The Appointment Committee is responsible for determining the compensation
(including fringe benefits but excluding compensation awarded pursuant to
executive compensation programs) of those
4
officers of the Company whose compensation is not determined by the
Compensation Committee. The members of the Appointment Committee are Dr.
Smurfit and Messrs. Goldberg, Graham and Kilroy. Mr. Graham abstains from
votes concerning his own compensation. The Appointment Committee held one
meeting in 1997.
Nominations to the Board of Directors are made pursuant to the terms of
the Stockholders Agreement. See 'Certain Transactions -- The Stockholders
Agreement.'
PRINCIPAL STOCKHOLDERS
Security Ownership of Certain Beneficial Owners
The table below sets forth certain information regarding the beneficial
ownership of the Common Stock by each person who is known to the Company to be
the beneficial owner of more than 5% of the Company's voting stock as of March
9, 1998. Except as set forth below, the stockholders named below have sole
voting and investment power with respect to all shares of Common Stock shown
as being beneficially owned by them.
<TABLE>
<CAPTION>
Amount and
Nature of Percent of
Name and Address of Beneficial Common
Beneficial Owner Ownership Stock
- -------------------------------------------------------------- ----------- -----------
<S> <C> <C>
SIBV ......................................................... 51,638,462 46.5%
Smurfit International B.V.
Strawinskylaan 2001
Amsterdam 1077ZZ, The Netherlands
Attention: Rokin Corporate Services B.V.
MSLEF II Associated Entities ................................. 31,800,000 28.7%
c/o Morgan Stanley & Co. Incorporated
1221 Avenue of the Americas
New York, NY 10020
Attention: Alan E. Goldberg
Mellon Bank, N.A., as Trustee for
First Plaza Group Trust<fn1>.................................. 5,000,000 4.5%
One Mellon Bank Center
Pittsburgh, PA 15258
- ---------
<FN>
<fn1>Amounts shown exclude shares of Common Stock owned by MSLEF II, of which
First Plaza Group Trust is a limited partner. If MSLEF II were to
distribute its shares of Common Stock to its partners, First Plaza Group
Trust would receive a number of shares based on its pro rata ownership of
MSLEF II.
</FN>
</TABLE>
5
Security Ownership of Management
The table below sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 9, 1998 for (i) each of the
directors and nominees for director, (ii) each of the Named Executive Officers
(as defined below), and (iii) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
Shares of Common Stock
--------------------------
Amount and
Nature of Percent of
Beneficial Common
Beneficial Owner Ownership<fn1><fn2> Stock<fn3>
- ------------------------------------------------------------ ------------- -----------
<S> <C> <C>
Michael W. J. Smurfit<fn4>.................................. 132,883 0.1%
Richard W. Graham........................................... 50,807 0.0%
James E. Terrill............................................ 47,913 0.0%
Howard E. Kilroy<fn4>....................................... 42,300 0.0%
Patrick J. Moore............................................ 13,604 0.0%
David C. Stevens............................................ 16,855 0.0%
F. Scott Macfarlane......................................... 8,067 0.0%
Leigh J. Abramson<fn5>...................................... 0 0.0%
Michael C. Hoffman<fn5>..................................... 0 0.0%
Alan E. Goldberg<fn5>....................................... 0 0.0%
G. Thompson Hutton.......................................... 0 0.0%
Michael M. Janson<fn5>...................................... 0 0.0%
Thomas A. Reynolds, III..................................... 0 0.0%
All directors and executive officers as a group (27
persons)<fn4><fn5>........................................ 436,235 0.4%
- ---------
<FN>
<fn1>Shares shown as beneficially owned include the number of shares of Common
Stock that executive officers have the right to acquire within 60 days
after March 9, 1998 pursuant to exercisable options under the Company's
Amended and Restated 1992 Stock Option Plan.
<fn2>Shares shown include the number of shares of Common Stock held in the
Company's Savings Plan as of December 31, 1997, which the executive
officers have the right to vote.
<fn3>Based upon a total of 110,996,794 shares of Common Stock issued and
outstanding.
<fn4>Excludes shares of Common Stock owned by JS Group. Dr. Smurfit and Mr.
Kilroy own 7.4% and 0.8%, respectively, of the outstanding shares of JS
Group. Dr. Smurfit is an officer and a director of JS Group and Mr.
Kilroy is a director of JS Group.
<fn5>Excludes shares of Common Stock owned by MSLEF II Associated Entities.
</FN>
</TABLE>
6
EXECUTIVE COMPENSATION
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and the next four most highly compensated executive
officers of the Company (the 'Named Executive Officers') during 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
------------------------
Awards Payouts
Annual Compensation ----------- -----------
-------------------------------------------------- Securities LTIP All Other
Name and Principal 1997 Other Annual Underlying Payouts Compensation
Position Year Salary($) Bonus($) Bonus($)<fn1> Compensation($)<fn2> Options ($) ($)<fn3>
- ---------------------- --------- --------- --------- ----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Michael W. J. 1997 $ 834,000 $ 0 $ 0 $ 0 0 $ 0 $ 26,757
Smurfit ............ 1996 834,000 0 0 30,000 0 0 18,611
Chairman of the 1995 834,000 650,437 0 30,000 0 0 16,956
Board
Richard W. Graham .... 1997 900,000 0 676,611 145,494 300,000 0 26,768
President and Chief 1996 581,833 0 0 3,975 390,000 0 16,712
Executive Officer 1995 405,000 315,931 0 12,115 10,000 0 13,601
Patrick J. Moore ..... 1997 305,000 0 337,671 70,333 200,000 0 6,987
Vice President and 1996 230,000 104,218 0 5,875 57,000 0 6,566
Chief Financial 1995 200,000 64,494 0 3,089 0 0 5,095
Officer
F. Scott 1997 264,000 42,054 0 5,047 60,000 0 8,370
Macfarlane ......... 1996 255,000 14,879 0 5,846 62,000 0 8,132
Vice President and 1995 221,250 18,304 0 4,789 0 0 5,232
General
Manager -- Folding
Carton and Boxboard
Mill Division
David C. Stevens ..... 1997 238,000 131,648 270,048 0 100,000 0 12,276
Vice President and 1996 220,000 0 0 5,590 0 0 11,413
General 1995 210,000 74,271 0 6,845 0 0 9,334
Manager -- Smurfit
Recycling Company
- ---------
<FN>
<fn1>Amounts due as of April 30, 1997 pursuant to awards made under the
Company's 1994 Long-Term Incentive Plan. Amounts were either payable in
cash or deferred into the Company's Deferred Compensation Plan at the
election of the Named Executive Officer.
<fn2>Amounts shown under 'Other Annual Compensation' for 1997 include $77,524
for Mr. Graham and $35,639 for Mr. Moore for club dues.
<fn3>Amounts shown under 'All Other Compensation' for 1997 include a $4,750
Company contribution to the Company's Savings Plan for each Named
Executive Officer (other than Dr. Smurfit) and Company-paid split-dollar
term life insurance premiums for Dr. Smurfit ($25,155) and Messrs. Graham
($22,018), Moore ($2,237), Macfarlane ($3,620) and Stevens ($7,526). Dr.
Smurfit also had reportable (above 120% of the applicable federal
long-term rate) earnings equal to $1,602 credited to his account under
the Company's Deferred Compensation Capital Enhancement Plan.
</FN>
</TABLE>
7
Option Grants in Last Fiscal Year -- The following table provides
information concerning stock options granted to the Named Executive Officers
during 1997.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1997
Potential Realizable
Value
at Annual Rates of
Stock
Number of Price Appreciation
Securities % of Total for Option
Underlying Options Granted Exercise or Term($)<fn1>
Options to Employees Base Price Expiration --------------------
Name Granted in Fiscal Year ($ Per Share) Date 5% 10%
- --------------------------- -------- ----------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael W. J. Smurfit...... 0 N/A N/A N/A N/A N/A
Richard W. Graham.......... 300,000 27.3% $ 13.13 4/30/09 $3,133,684 $8,420,062
Patrick J. Moore........... 200,000 18.2% 13.13 4/30/09 2,089,123 5,613,374
F. Scott Macfarlane........ 60,000 5.5% 13.13 4/30/09 626,737 1,684,012
David C. Stevens........... 100,000 9.1% 13.13 4/30/09 1,044,561 2,806,687
- ---------
<FN>
<fn1>The dollar amounts under these columns are the result of calculations at
5% and 10% rates, as set by the Securities and Exchange Commission's
executive compensation disclosure rules. Actual gains, if any, on stock
option exercises depend on future performance of the Common Stock and
overall stock market conditions. No assurance can be made that the amounts
reflected in these columns will be achieved.
</FN>
</TABLE>
As of December 31, 1997, there were 8,167,773 shares of Common Stock
reserved for issuance under the Company's Amended and Restated 1992 Stock
Option Plan, including 4,873,895 shares available for future grants.
Option Exercises and Year-End Value Table -- The following table
summarizes the exercise of options and the value of options held by the Named
Executive Officers as of the end of 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUE
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options Options
at January 1, at January 1,
Shares 1998(#) 1998(#)<fn1>
Acquired on Value ------------------------- --------------------------
Name Exercise(#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------------------------------------- ----------- ------------------------- --------------------------
<S> <C> <S> <C> <C> <C> <C>
Michael W. J. Smurfit......... 0 N/A 102,600 / 923,400 $423,225 / $3,809,025
Richard W. Graham............. 0 N/A 9,100 / 790,900 37,538 / 1,091,213
Patrick J. Moore.............. 0 N/A 4,500 / 320,500 18,563 / 468,563
F. Scott Macfarlane........... 0 N/A 1,800 / 148,200 7,425 / 329,075
David C. Stevens.............. 0 N/A 4,500 / 145,500 18,563 / 275,188
- ---------
<FN>
<fn1>The closing market value of the Common Stock on December 31, 1997 was
$14.13 per share. On that date, the exercise prices per share for
outstanding options held by the Named Executive Officers ranged from
$10.00 to $17.63.
</FN>
</TABLE>
Pension Plans
Salaried Employees' Pension Plan and Supplemental Income Pension Plan
The Company and its subsidiaries maintain a non-contributory pension plan
for salaried employees (the 'Pension Plan') and a non-contributory
supplemental income pension plan (the 'SIP') for certain key executive
officers, under which benefits are determined by final average earnings and
years of credited service and are offset by a certain portion of social
security benefits. For purposes of the Pension Plan, final average earnings
equals the participant's average earnings for the five consecutive
highest-paid calendar years of the participant's last 10 years of service,
including overtime and certain bonuses, but excluding bonus payments under the
Management Incentive Plan, deferred or acquisition
8
bonuses, fringe benefits and certain other compensation. For purposes of SIP,
final average earnings equals the participant's average earnings, including
bonuses under the Management Incentive Plan, for the five consecutive
highest-paid calendar years of the participant's last 10 years of service. SIP
recognizes all years of credited service.
The pension benefits for the Named Executive Officers can be calculated
pursuant to the following table, which shows the total estimated single life
annuity payments (prior to adjustment for Social Security) that would be
payable to the Named Executive Officers participating in the Pension Plan and
the SIP after various years of service at selected compensation levels.
Payments under the SIP are an unsecured liability of the Company.
Each Year
Remuneration in Excess
- ----------------------- of 20
Final Average Earnings 5 years 10 years 15 years 20 years years
- ----------------------- --------- --------- --------- --------- ---------
$ 200,000 $ 25,000 $ 50,000 $ 75,000 $ 100,000 *
400,000 50,000 100,000 150,000 200,000 *
600,000 75,000 150,000 225,000 300,000 *
800,000 100,000 200,000 300,000 400,000 *
1,000,000 125,000 250,000 375,000 500,000 *
1,200,000 150,000 300,000 450,000 600,000 *
1,400,000 175,000 350,000 525,000 700,000 *
1,600,000 200,000 400,000 600,000 800,000 *
1,800,000 225,000 450,000 675,000 900,000 *
2,000,000 250,000 500,000 750,000 1,000,000 *
- ---------
* An additional 1% of earnings is accrued for each year in excess of 20
years.
Dr. Smurfit and Messrs. Graham, Moore, Macfarlane and Stevens, participate
in SIP and have 42, 39, 11, 26 and 10 years of credited service, respectively.
Current average earnings as of December 31, 1997, for each of the Named
Executive Officers was as follows: Dr. Smurfit ($1,123,110); Mr. Graham
($605,129); Mr. Moore ($252,790); Mr. Macfarlane ($245,368); and Mr. Stevens
($306,547).
REPORT OF THE COMPENSATION COMMITTEE AND
APPOINTMENT COMMITTEE ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934 that might incorporate this Proxy Statement or future
filings with the Securities and Exchange Commission, in whole or in part, the
following report and the Performance Graph shall not be deemed to be
incorporated by reference into any such filings.
The Compensation Committee (the 'Committee') consists of three members of
the Company's Board of Directors who are not employees of the Company and who
have no interlocking relationships requiring disclosure. The Appointment
Committee consists of four members of the Company's Board of Directors, two of
whom are current officers or employees of the Company and one of whom is a
former officer of the Company (see below). These committees oversee the
administration of executive compensation programs and determine the
compensation of the executive officers, including the Named Executive
Officers. See 'Board and Board Committee Meetings, Committee Functions and
Composition' above for a description of the allocation of responsibilities
between these committees.
The goals of the Company's executive compensation program are: to attract,
retain and motivate qualified executives with outstanding abilities; to tie a
significant portion of the overall compensation of executive officers to the
Company's profitability; and to seek to enhance the Company's profitability by
aligning the interests of executive officers with those of the Company's
stockholders.
In determining base salaries for each of the Named Executive Officers, as
well as other executive officers, consideration is given to national and local
salary surveys and the results of an informal,
9
internal review of salaries paid to officers with comparable qualifications,
experience and responsibilities at other companies of similar size.
The Company's executive officers, as well as other key employees of the
Company, participate in an annual management incentive plan (the 'MIP'), with
awards based upon the attainment of pre-established individual goals and
profit targets for the Company.
Each fiscal year the Committee considers the desirability of granting
awards under the Company's Amended and Restated 1992 Stock Option Plan to
executive officers, including the Named Executive Officers. In determining the
amount and nature of awards under the Plan to executive officers other than
the Chief Executive Officer, the Committee takes into account the respective
scope of accountability, strategic and operational goals, and anticipated
performance requirements and contributions of each executive officer. Stock
options awarded to the Chief Executive Officer are established separately. The
Committee believes that past grants of stock options have successfully focused
the Company's senior management on building profitability and shareholder
value.
Section 162(m) ('Section 162(m)') of the Internal Revenue Code of 1986, as
amended (the 'Code'), generally limits to $1,000,000 per person a publicly
held corporation's federal income tax deduction for compensation paid in any
year to its Chief Executive Officer and each of its four other highest paid
executive officers to the extent such compensation is not 'performance-based'
within the meaning of Section 162(m). Section 162(m) does not apply to the
Company for the 1997 tax year because the Company is not 'publicly held' as
defined for this purpose in the Code. The Company has historically set
compensation and bonuses based upon performance, and the Company intends to
continue this practice. At such time as Section 162(m) becomes applicable to
the Company, the committees will, in general, seek to qualify compensation
paid to its executive officers for deductibility under Section 162(m) although
the committees believe it is appropriate to retain the flexibility to
authorize payments of compensation that may not qualify for deductibility if,
in the committees' judgment, it is in the Company's best interest to do so.
CEO Compensation
Mr. Graham's salary as the Chief Executive Officer was set by the
Appointment Committee. Mr. Graham's salary was based on an informal review of
salaries paid to officers with comparable qualifications, experience and
responsibilities at other companies of similar size. Based on this assessment,
the Chief Executive Officer was awarded a base salary for 1997 of $900,000.
Pursuant to the terms of the MIP, he did not receive a performance based
incentive award for 1997. Mr. Graham was awarded 300,000 stock options in 1997
in accordance with the general award policies described above.
The Appointment Committee undertakes the responsibility for reviewing the
salary level and the overall compensation of the Chief Executive Officer based
upon a periodic review of peer group companies, the performance of the Company
in relation to its peers and the performance of the individual. The evaluation
recognizes the major role of the Chief Executive Officer in strategic
initiatives to be accomplished by the Company, including cost savings measures
instituted under the tenure of the Chief Executive Officer; growth in the
market price for the Company's securities; and favorable corporate
developments for increased sales volume. Mr. Graham abstained from votes
concerning his own compensation.
Submitted by the Compensation Committee and the Appointment Committee of
the Company's Board of Directors.
Compensation Committee Appointment Committee
- ------------------------ ------------------------
L.J. Abramson A.E. Goldberg
D.P. Brennan* R.W. Graham
A.E. Goldberg H.E. Kilroy
M.W. J. Smurfit
- ---------
* Replaced by Mr. Hoffman on February 26, 1998.
10
COMPENSATION / APPOINTMENT COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
No member of the Company's Compensation Committee is currently or was,
during the year ended December 31, 1997, an officer, former officer or
employee of the Company or any of its subsidiaries. With regard to the
Appointment Committee of the Company (the current members of which are Messrs.
Goldberg, Graham and Kilroy and Dr. Smurfit), Mr. Graham and Dr. Smurfit are
currently officers of the Company and Mr. Kilroy is a former officer of the
Company. No executive officer of the Company served as a member of (i) the
compensation committee of another entity in which one of the executive
officers of such entity served on the Company's Compensation or Appointment
Committees, (ii) the Board of Directors of another entity in which one of the
executive officers of such entity served on the Company's Compensation or
Appointment Committees, or (iii) the compensation committee of another entity
in which one of the executive officers of such entity served as a member of
the Company's Board of Directors, during the year ended December 31, 1997.
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Common Stock, the S&P 500 Index and an index of a peer group of paper
companies for the period from May 4, 1994, the date on which the Common Stock
commenced trading on the Nasdaq Stock Market, until December 31, 1997. The
peer group index comprises the following 11 medium to large sized companies
whose primary business is the manufacture and sale of paper products:
Chesapeake Corporation, Gaylord Container Corporation, Georgia Pacific
Corporation, International Paper, Rock-Tenn Company, Sonoco Products Company,
Stone Container Corporation, Temple-Inland Inc., Union Camp Corporation,
Weyerhaeuser Company and Willamette Industries, Inc. The graph assumes the
value of an investment in the Common Stock and each index was $100.00 at May
4, 1994 and that all dividends were reinvested.
<TABLE>
<CAPTION>
Cumulative Total Return
(from May 4, 1994 to December 31, 1997)
December
May 4, 31, December December December
1994 1994 31, 1995 31, 1996 31, 1997
<S> <C> <C> <C> <C> <C>
Jefferson Smurfit
Corporation $ 100.00 $ 130.77 $ 73.08 $ 123.55 $ 108.65
S&P 500 Index 100.00 105.91 145.71 179.16 238.94
Peer Group 100.00 109.21 116.41 129.79 141.70
</TABLE>
11
CERTAIN TRANSACTIONS
Net sales by the Company to JS Group, its subsidiaries and its affiliates
were $34 million for the year ended December 31, 1997. Net sales by JS Group,
its subsidiaries and its affiliates to the Company were $51 million for the
year ended December 31, 1997. Product sales to and purchases from JS Group,
its subsidiaries and its affiliates were consummated on terms generally
similar to those prevailing with unrelated parties.
The Company provides certain subsidiaries and affiliates of JS Group with
general management and elective management services under separate management
services agreements. The elective services provided include, but are not
limited to, management information services, accounting, tax and internal
auditing services, financial management and treasury services, manufacturing
and engineering services, research and development services, employee benefit
plan and management services, purchasing services, transportation services and
marketing services. In consideration of general management services, the
Company is paid a negotiated fee, which amounted to approximately $1 million
for 1997. In consideration for elective services provided in 1997, the Company
received reimbursements of approximately $3 million in 1997. In addition, the
Company paid JS Group and its affiliates approximately $1 million in 1997 for
certain other services.
In October 1991, an affiliate of JS Group completed a rebuild of the No. 2
paperboard machine owned by it, located in Jefferson Smurfit Corporation
(U.S.)'s ('JSC (U.S.)') Fernandina Beach, Florida paperboard mill (the
'Fernandina Mill'). Pursuant to the Fernandina Operating Agreement, JSC (U.S.)
operates and manages the machine, which is owned by a subsidiary of SIBV. As
compensation to JSC (U.S.) for its services, the affiliate of JS Group agreed
to reimburse JSC (U.S.) for production and manufacturing costs directly
attributable to the No. 2 paperboard machine and to pay JSC (U.S.) a portion
of the indirect manufacturing, selling and administrative costs incurred by
JSC (U.S.) for the entire Fernandina Mill. The compensation is determined by
applying various formulas and agreed upon amounts to the subject costs. The
amounts reimbursed to JSC (U.S.) totaled $53 million in 1997.
The Stockholders Agreement
Pursuant to the Stockholders Agreement among MSLEF II, SIBV, the Company
and certain other parties, SIBV and the MS Holders (as defined in the
Stockholders Agreement) shall vote their shares of Common Stock subject to the
Stockholders Agreement to elect as directors of the Company a certain number
of individuals selected by SIBV and a certain number of individuals selected
by MSLEF II, with such numbers varying, depending on the amount of Common
Stock collectively owned by the MS Holders, the amount of Common Stock owned
by SIBV and the magnitude of the Initial Return (as defined in the
Stockholders Agreement) received by the MS Holders on their investment of
Common Stock. Currently, the Company's Board of Directors consists of five
directors selected by MSLEF II (one of whom is not affiliated with MSLEF II or
the Company) and five directors selected by SIBV (one of whom is not
affiliated with SIBV or the Company). Pursuant to the Stockholders Agreement
the five directors selected by (i) MSLEF II are: Messrs. Abramson, Hutton,
Goldberg, Hoffman and Janson, with Mr. Hutton being the director not
affiliated with MSLEF II or the Company; and (ii) SIBV are: Messrs. Graham,
Kilroy, Reynolds, Smurfit and Terrill, with Mr. Reynolds being the director
not affiliated with SIBV. Pursuant to the Stockholders Agreement, SIBV and
MSLEF II have agreed to ensure the Board of Directors will consist of only ten
directors (unless they otherwise agree). Depending on the amount of Common
Stock collectively owned by the MS Holders and the magnitude of the Initial
Return received by the MS Holders on their investment of Common Stock,
approval of certain specified actions of the Board shall require certain
approval as specified in the Stockholders Agreement.
PROPOSAL 2 -- RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
Upon the recommendation of the Company's Audit Committee, Ernst & Young
LLP, independent auditors of the Company since July 1982, have been appointed
by the Board of Directors of the
12
Company as independent auditors for the Company for the fiscal year ending
December 31, 1998. This selection is being presented to the stockholders for
ratification. The Board of Directors of the Company recommends a vote FOR
ratification. The persons named on the enclosed proxy card intend to vote the
proxies solicited hereby FOR ratification unless specifically directed
otherwise on such proxy card.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do
so and such representatives are expected to be available to respond to
appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who beneficially own
more than ten percent of the Company's common stock, to file initial reports
of ownership and reports of changes in ownership with the Securities and
Exchange Commission ('SEC'). Executive officers, directors and greater than
ten percent beneficial owners are required by SEC 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 the period from January 1, 1997
through February 28, 1998 its executive officers, directors and greater than
ten percent beneficial owners complied with all Section 16(a) filing
requirements applicable to them, except on two occasions there was a failure
to file a Form 4, Statement of Changes in Beneficial Ownership, on a timely
basis with the SEC by the parent company of MS&CO. in connection with a
purchase and a sale of Common Stock by MS&CO.
OTHER MATTERS
Management does not know of any other business which may be considered at
the Annual Meeting. However, if any matters other than those referred to above
should properly come before the Annual Meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the proxies held by
them in accordance with their best judgment.
The entire expense associated with preparing, assembling and mailing this
Proxy Statement and with the solicitation of proxies by the Board of Directors
of the Company will be borne by the Company. In addition to solicitation of
proxies by mail, the directors, officers and employees of the Company may
solicit proxies for use at the Annual Meeting by personal interview, by
telephone or by telegraph. Directors, officers and other employees of the
Company will receive no additional compensation for soliciting such proxies
for use at the Annual Meeting. It is anticipated that the telephone and
telegraph charges so incurred will be minimal.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING OF STOCKHOLDERS
Stockholder proposals submitted for inclusion in the proxy statement for
the 1999 Annual Meeting of Stockholders must be received at the corporate
offices of the Company, addressed to the attention of Mr. Michael E. Tierney,
Secretary, Jefferson Smurfit Corporation, 8182 Maryland Avenue, St. Louis,
Missouri 63105 no later than December 2, 1998.
By Order of the Board of Directors
MICHAEL E. TIERNEY
Secretary
April 2, 1998
13
