<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] 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
</TABLE>
CARAUSTAR INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
(CARAUSTAR LETTERHEAD)
March 12, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Caraustar Industries, Inc. The meeting will be held on Wednesday, April 15,
1998, at 9:00 A.M. at the Caraustar corporate headquarters, 3100 Washington
Street, Austell, Georgia.
The primary business of the meeting will be the election of directors, approval
of Caraustar's 1998 Key Employee Incentive Compensation Plan and the
ratification of the selection of independent public accountants, as more fully
explained in the enclosed proxy statement.
During the meeting, we will also report to you on the condition and performance
of Caraustar and its subsidiaries, including developments during the past fiscal
year. You will have an opportunity to question management on matters that affect
the interest of all shareholders.
We hope to see you on April 15, 1998. Whether you plan to attend or not, please
complete, sign, date and return the enclosed proxy card as soon as possible in
the postage-paid envelope provided. Your vote is important. We appreciate your
continued interest and support of Caraustar.
Sincerely yours,
CARAUSTAR INDUSTRIES, INC.
<TABLE>
<S> <C>
/s/ Russell M. Robinson, II /s/ Thomas V. Brown
Russell M. Robinson, II Thomas V. Brown
Chairman of the Board President and Chief Executive Officer
</TABLE>
<PAGE> 3
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, APRIL 15, 1998
The Annual Meeting of Shareholders of Caraustar Industries, Inc. ("Caraustar")
will be held on Wednesday, April 15, 1998, at 9:00 A.M., at the Caraustar
corporate headquarters, 3100 Washington Street, Austell, Georgia for the
following purposes:
1. To elect three Class III directors to serve until the 2001 Annual
Meeting of Shareholders.
2. To consider and act on a proposal to approve Caraustar's 1998 Key
Employee Incentive Compensation Plan.
3. To consider and act on a proposal to ratify the selection of Arthur
Andersen LLP as independent public accountants to audit the books of the
Company and its subsidiaries for the year ending December 31, 1998.
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
The Board of Directors has fixed the close of business on February 20, 1998, as
the record date for determination of shareholders entitled to notice of and to
vote at the meeting and any adjournments thereof.
By Order of the Board of Directors
/s/ Marinan R. Mays
Marinan R. Mays
Corporate Secretary and Manager,
Administrative Services
March 12, 1998
PLEASE COMPLETE AND RETURN THE ENCLOSED APPOINTMENT OF PROXY. IF YOU ATTEND THE
MEETING IN PERSON, YOU MAY WITHDRAW YOUR APPOINTMENT OF PROXY AND VOTE YOUR OWN
SHARES.
<PAGE> 4
CARAUSTAR INDUSTRIES, INC.
3100 WASHINGTON STREET
AUSTELL, GEORGIA 30106
---------------------
PROXY STATEMENT
---------------------
The following statement, first mailed on or about March 12, 1998, is
furnished in connection with the solicitation by the Board of Directors (the
"Board") of Caraustar Industries, Inc. (the "Company") of proxy appointment
forms to be used at the Annual Meeting of Shareholders of the Company to be held
on April 15, 1998, at 9:00 A.M., at the Caraustar corporate headquarters, 3100
Washington Street, Austell, Georgia and at any adjournment or adjournments
thereof.
Please complete, date and sign the accompanying proxy appointment form and
return it to ensure that your shares are voted at the meeting. You may revoke
the appointment of proxy at any time before it is exercised by submitting to the
Secretary of the Company written notice of revocation, a properly executed
appointment of proxy of a later date, or by attending the meeting and electing
to vote in person. All shares represented by valid proxy appointment forms
received pursuant to this solicitation, and not revoked before they are
exercised, will be voted in the manner specified therein. If no specification is
made, the proxies will vote in favor of the election to the Board of Directors
of the three Class III director nominees named in this Proxy Statement, a
proposal to approve the Company's 1998 Key Employee Incentive Compensation Plan
(the "1998 Incentive Plan"), and a proposal to ratify action taken by the Board
of Directors in selecting Arthur Andersen LLP as independent public accountants
to audit the books of the Company and its subsidiaries for the year ending
December 31, 1998.
The Company will bear the entire cost of preparing this Proxy Statement and
of soliciting the enclosed proxy appointment forms. In addition to the
solicitation of the proxies by mail, the Company will request banks, brokers and
other record holders to send proxy appointment forms and proxy material to the
beneficial owners of the stock and secure their voting instructions, if
necessary. The Company will reimburse them for their reasonable expenses in so
doing. If necessary, the Company may use several of its regular employees, who
will not be specially compensated, to solicit proxy appointment forms from
shareholders, either personally or by telephone, telegram or special letter. The
Company has retained Corporate Investor Communications, Inc. to assist in the
solicitation at an estimated cost of $7,500.
February 20, 1998 has been fixed as the record date for determination of
shareholders entitled to notice of and to vote at such Annual Meeting and,
accordingly, only record holders of the Company's Common Shares, $.10 par value
(the "Common Shares") at the close of business on February 20, 1998 will be
entitled to notice of and to vote at the meeting.
The number of outstanding Common Shares entitled to vote as of the record
date was 25,281,340. Each Common Share is entitled to one vote. In accordance
with North Carolina law and the Company's bylaws, a majority of the outstanding
Common Shares represented in person or by proxy will constitute a quorum for the
election of directors, approval of the 1998 Incentive Plan and the ratification
of the selection of accountants. Abstentions and broker non-votes will be
counted for purposes of determining the presence or absence of a quorum. With
regard to the election of directors, votes may either be cast in favor of or
withheld, and directors will be elected by a plurality of the votes cast. Votes
that are withheld will be excluded entirely from the vote and will have no
effect on the outcome of the election. The proposal to approve the 1998
Incentive Plan and the selection of auditors will be approved if the number of
votes cast for the proposal exceeds the number of votes cast against the
proposal. Thus, abstentions and broker non-votes will have no effect on the
outcome of the vote on the proposals.
<PAGE> 5
SHARE OWNERSHIP
As of March 3, 1998, the only class of voting securities the Company had
issued and outstanding was its Common Shares. On that date there were 25,282,840
Common Shares outstanding. The following table sets forth the names of, and the
numbers and percentages of Common Shares beneficially owned as of March 3, 1998
by: (a) each person known to the Company to own beneficially 5% or more of the
Company's outstanding Common Shares; (b) each director and nominee; (c) each
executive officer of the Company identified below in the Summary Compensation
Table; and (d) all executive officers and directors of the Company as a group. A
"beneficial owner" of Common Shares is a person who has either the voting or
investment power, or both, alone or shared with others, over such Common Shares.
Each of the individuals listed below possesses sole voting and investment power
with respect to the shares listed opposite his or her name, unless noted
otherwise.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------
NAME AND ADDRESS+ OF BENEFICIAL OWNER NUMBER(1) PERCENT
- ------------------------------------- ----------- ---------
<S> <C> <C>
The Capital Group Companies, Inc.(2)........................ 1,539,300 6.1%
333 South Hope Street
Los Angeles, California 90071
Maxine Francis Forrest(3)................................... 1,445,314 5.7%
P.O. Box 115
Austell, Georgia 30168
Thomas V. Brown(4).......................................... 208,783 *
Bob M. Prillaman............................................ 163,360 *
Jimmy A. Russell............................................ 125,061 *
Russell M. Robinson, II(5).................................. 108,400 *
Ralph M. Holt, Jr........................................... 95,242 *
H. Lee Thrash, III(6)....................................... 93,552 *
James L. Walden............................................. 59,500 *
Edward G. Schmitt........................................... 57,453 *
John D. Munford............................................. 5,855 *
James E. Rogers............................................. 5,470 *
James H. Hance, Jr.(7)...................................... 5,470 *
Directors and Executive Officers as a group (14 persons).... 2,414,747 9.5%
</TABLE>
- ---------------
+ Addresses are furnished only for each person known to the Company to own
beneficially 5% or more of the Company's outstanding Common Shares.
(1) Includes the following shares subject to stock options exercisable within 60
days after March 3, 1998: Mr. Brown -- 118,158; Mr. Walden -- 29,500; Mr.
Russell -- 11,375; Mr. Thrash -- 10,500; Mr. Schmitt -- 9,875; Ms.
Forrest -- 3,000; Mr. Robinson -- 3,000; Mr. Holt -- 3,000; Mr. Rogers --
3,000; Mr. Hance -- 3,000; Mr. Munford -- 3,000; Directors and Executive
Officers as a group -- 206,783.
(2) Based on a Schedule 13G filed with the Company on or about February 10,
1998. The Capital Group Companies, Inc. is the parent holding company of a
group of investment management companies that hold investment power and, in
some cases, voting power over the securities reported above. The investment
management companies provide investment advisory and management services for
their respective clients, which include registered investment companies and
institutional accounts. The Capital Group Companies, Inc. does not have
investment power or voting power over any of the securities reported above;
however, The Capital Group Companies, Inc. may be deemed to "beneficially
own" such securities within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934.
(3) Includes 71,279 shares registered in the name of Mrs. Forrest's husband,
over which Mrs. Forrest disclaims beneficial ownership, 142,438 shares held
by Mrs. Forrest in trust for herself under an agreement with her mother,
465,434 shares held by Mrs. Forrest as trustee or custodian for certain
family members and 360,000 shares held by The Lucille P. and Edward C. Giles
Foundation, over which Mrs. Forrest has shared voting and investment power.
2
<PAGE> 6
(4) Includes 24,200 shares registered in the name of Mr. Brown's wife.
(5) Includes 46,890 shares registered in the name of Mr. Robinson's wife.
(6) Includes 4,434 shares held by Mr. Thrash as custodian for his children and
148 shares held in his wife's Individual Retirement Account.
(7) Includes 2,000 shares held in a family partnership, over which Mr. Hance has
shared voting and investment power.
* Denotes ownership of less than 1% of the Company's Common Shares.
SHAREHOLDER RETURN
Performance Graph. The following graph compares the cumulative total
shareholder return on the Company's Common Shares for the years 1993 through
1997 with (a) the cumulative total return of the S&P 400 Index and (b) the
cumulative total return of the S&P Paper & Forest Products Index. All cumulative
returns assume the investment of $100.00 in each of the Company's Common Shares,
the S&P 400 Index and the S&P Paper & Forest Products Index on December 31, 1992
and assume the reinvestment of dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG CARAUSTAR INDUSTRIES, INC., S&P 400 INDEX &
S&P PAPER & FOREST PRODUCTS INDEX FOR THE YEARS 1993 THROUGH 1997
<TABLE>
<CAPTION>
S&P PAPER &
FOREST
MEASUREMENT PERIOD PRODUCTS
(FISCAL YEAR COVERED) CARAUSTAR S&P 400 INDEX
<S> <C> <C> <C>
12/31/92 100.00 100.00 100.00
12/31/93 91.59 109.15 110.24
12/31/94 124.09 113.40 114.90
12/31/95 114.06 152.66 126.47
12/31/96 193.05 187.80 139.91
12/31/97 202.72 246.00 149.98
</TABLE>
3
<PAGE> 7
ELECTION OF DIRECTORS
The Board of Directors currently consists of 9 members and is divided into
3 classes (I, II and III). Each newly elected class of directors will serve
terms of three years. The term of office for incumbent Class III directors will
expire at the 1998 Annual Meeting. The incumbent Class III directors are James
H. Hance, Jr., John D. Munford and James E. Rogers.
It is intended that the persons named in the accompanying proxy appointment
form will vote only for the three nominees for Class III director, except to the
extent authority to so vote is withheld with respect to one or more nominees.
Although the Board does not expect that any of the nominees named will be
unavailable for election, in the event of a vacancy in the slate of nominees
occasioned by death or any other unexpected occurrence, it is intended that the
Common Shares represented by the accompanying proxy appointment form will be
voted for the election of a substitute nominee selected by the persons named in
the proxy appointment form.
During 1997 the Board of Directors held 7 meetings and on 2 occasions acted
by unanimous written consent.
The Board of Directors maintains an Audit Committee, on which Mrs. Forrest
and Messrs. Hance, Holt (chairman) and Rogers serve. The Audit Committee reviews
the results and scope of each audit, the service provided by the Company's
independent accountants and related-party transactions. The Audit Committee met
3 times in 1997.
The Board of Directors also has a Compensation and Employee Benefits
Committee, on which Mrs. Forrest and Messrs. Munford and Rogers (Chairman)
serve. The Compensation and Employee Benefits Committee establishes and reviews
the compensation criteria and policies of the Company, administers the Company's
1993 Key Employees' Share Ownership Plan and Incentive Bonus Plan and will
administer the Company's 1998 Incentive Plan. The Compensation and Employee
Benefits Committee met 3 times in 1997.
Each director who is not an employee or former employee of the Company is
being paid (in quarterly installments) an annual retainer fee of $15,000 for
serving as a director. A non-executive Chairman of the Board is paid an annual
retainer fee of $50,000. Under the Company's 1996 Director Equity Plan, half of
these annual retainers are paid in Common Shares, and each such director
receives an annual grant of options to purchase 1,000 Common Shares valued at
the closing price of such shares on the last business day preceding the date of
grant. The chairmen of the Audit Committee, Compensation and Employee Benefits
Committee and Executive Committee also receive an annual retainer fee of $3,000.
Additionally, all directors who are not employees of the Company are paid a fee
of $1,500 per meeting for attending meetings of the Board of Directors, $500 for
participation in a telephonic Board meeting, $750 per committee meeting attended
and $250 per committee meeting by telephone conference. All directors are
reimbursed for ordinary and necessary out-of-pocket expenses incurred in
attending meetings of the Board of Directors.
The Board of Directors makes nominations for director candidates as
permitted by the Company's Bylaws. Section 3 of Article III of the Company's
Bylaws prescribes the procedure a shareholder must follow to make nominations
for director candidates. Shareholder nominations for director will be considered
at an annual meeting or any other meeting at which an election is to be held if
the shareholder delivers to the Secretary of the Company, not later than the
close of business on the fifth business day following the date on which notice
is first given to shareholders of the meeting at which such election is to be
held, a notice setting forth the information specified in Section 3 of Article
III of the Company's Bylaws. Any shareholder desiring a copy of the Company's
Bylaws will be furnished one without charge upon written request to the
Secretary.
Each director and nominee's name, age, current principal occupation (which
has continued for at least five years unless otherwise indicated) and the name
and principal business of the corporation in which that occupation is carried
on, the year each incumbent was first elected to the Board, all positions and
offices presently held with the Company and directorships in other publicly held
companies are set forth below. None of the following nominees or directors is
related (as first cousin or closer) by blood, marriage or adoption to any other
nominee, director or person who may be deemed to be an executive officer of the
Company.
4
<PAGE> 8
CLASS I DIRECTORS
(Incumbents to Serve Until 1999 Annual Meeting)
THOMAS V. BROWN (57), PRESIDENT AND CHIEF EXECUTIVE OFFICER, CARAUSTAR
INDUSTRIES, INC. Mr. Brown has served as President of the Company since January
1991 and as its Chief Executive Officer since October 1991. He has served as a
director since April 1991. Prior to joining the Company, Mr. Brown served as the
Vice President and General Manager, Industrial Packaging Division, of Jefferson
Smurfit Corporation, a recycled paperboard manufacturer, from October 1986
through December 1990.
MAXINE FRANCIS FORREST (47). Mrs. Forrest has served on the Board of
Trustees of Brevard College since 1988; on the Board of Trustees of the
Cleveland County Community Foundation, a charitable organization, since 1989,
and as Vice Chairman during 1993 and as Chairman during 1994 and 1995; on the
Board of Trustees of Cleveland Regional Medical Center since 1995; and on the
Board of Directors of Hospice of Cleveland County since 1997. Mrs. Forrest also
serves as President of the Lucille P. and Edward C. Giles Foundation, a
charitable organization that makes educational scholarship grants exclusively
for the benefit of the children and descendants of the Company's employees. Mrs.
Forrest has served as a director of the Company since April 1990. Mrs. Forrest
also is the granddaughter of the late Mr. Ross Puette, the Company's founder.
RALPH M. HOLT, JR. (66), CHAIRMAN AND CHIEF EXECUTIVE OFFICER, HOLT HOSIERY
MILLS, Burlington, North Carolina, a hosiery manufacturer. Mr. Holt has been a
director of the Company since April 1986, and has been the Chairman and Chief
Executive Officer of Holt Hosiery Mills since 1967.
CLASS II DIRECTORS
(Incumbents to serve until 2000 Annual Meeting)
BOB M. PRILLAMAN (65), SENIOR VICE PRESIDENT, CARAUSTAR INDUSTRIES, INC.
Mr. Prillaman has served as Senior Vice President of the Company from 1980 until
his retirement effective March 1, 1998 and as a director since 1980. Mr.
Prillaman has been employed by the Company or its predecessors since 1969.
RUSSELL M. ROBINSON, II (66), ATTORNEY AT LAW, ROBINSON, BRADSHAW & HINSON,
P.A., Charlotte, North Carolina, a law firm. Mr. Robinson has been engaged in
the private practice of law since 1956 and is a shareholder, officer and
director of Robinson, Bradshaw & Hinson, P.A. Mr. Robinson has been a director
of the Company since December 1992, and has served as Chairman of the Board of
Directors of the Company since April 1995. Mr. Robinson also serves as a
director of Cadmus Communications Corporation and Duke Energy Corporation.
H. LEE THRASH, III (47), VICE PRESIDENT, PLANNING AND DEVELOPMENT, AND
CHIEF FINANCIAL OFFICER, CARAUSTAR INDUSTRIES, INC. Mr. Thrash has been employed
by the Company since 1983 and has served as Vice President and Chief Financial
Officer of the Company since 1986 and as a director since 1987.
CLASS III DIRECTORS
(Nominees for election to serve until 2001 Annual Meeting)
JAMES H. HANCE, JR. (53), VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER,
NATIONSBANK CORPORATION, Charlotte, North Carolina, a bank holding company. Mr.
Hance has served as Vice Chairman and Chief Financial Officer of NationsBank
Corporation since October 1993, and as Chief Financial Officer since August
1988. Prior to joining NationsBank Corporation (formerly NCNB Corporation) in
March 1987, Mr. Hance, a certified public accountant, spent 17 years with the
public accounting firm of Price Waterhouse in Philadelphia and Charlotte. Mr.
Hance is also a director of NationsBank Corporation, Family Dollar Stores, Inc.,
Lance, Inc. and Summit Properties, Inc. Mr. Hance has been a director of the
Company since November 1995.
5
<PAGE> 9
JOHN D. MUNFORD (70), VICE CHAIRMAN (RETIRED), UNION CAMP CORPORATION,
Franklin, Virginia, a paper and forest products company. Mr. Munford served as
Executive Vice President of the fine papers group of Union Camp Corporation from
1984 until April 1991 and thereafter as Vice Chairman of the board of directors
of Union Camp Corporation until August 1993. During his 42 years of employment
with Union Camp Corporation, Mr. Munford held management positions in both sales
and operations. Mr. Munford has been a director of the Company since November
1994. Mr. Munford also serves as a director of Cadmus Communications
Corporation, Pulaski Furniture Corporation and Universal Corporation.
JAMES E. ROGERS (52), PRESIDENT, SCI INVESTORS INC., Richmond, Virginia, a
private equity investment firm. Mr. Rogers has been President of SCI Investors
Inc. since April 1993. From 1993 to 1996, Mr. Rogers also served as Chairman of
Custom Papers Group, Inc., a paper manufacturing company. From 1991 to 1993, Mr.
Rogers served as President and Chief Executive Officer of Specialty Coatings
International, Inc., a manufacturer of specialty paper and film products. Prior
to that time, Mr. Rogers was Senior Vice President, Group Executive of James
River Corporation, a paper and packaging manufacturer. Mr. Rogers has been a
director of the Company since November 1993. Mr. Rogers also serves as a
director of Wellman, Inc. and Owens & Minor, Inc.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Shares and other equity securities of the Company. Executive
officers, directors and greater than 10% shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during the year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its executive officers and
directors and any greater than 10% beneficial owners (the Company is aware of
none) were complied with.
EXECUTIVE COMPENSATION
Compensation Committee Report. The Company's Compensation and Employee
Benefits Committee (the "Compensation Committee") considers and makes
recommendations to the Board of Directors with respect to the compensation of
the chief executive officer and management incentive plans, sets and adjusts
salaries for the Company's other officers, and administers the Company's stock
option and incentive bonus plans. Set forth below is the Compensation
Committee's report on its actions and policies with regard to the compensation
of Thomas V. Brown, the Company's Chief Executive Officer, and the Company's
executive officers generally.
COMPENSATION POLICIES
The Compensation Committee's policies with regard to senior officer
compensation are (1) to pay appropriate base salaries based on reviews of base
salaries paid to executives in comparable companies and evaluations of
individual responsibilities and performance, (2) to provide long-term incentives
and encourage investment in the Company's shares by granting stock options and
other stock-based awards, and (3) to tie compensation to Company performance
through an annual incentive bonus plan. The Compensation Committee regularly
reviews compensation paid to executives in other comparable companies and uses
surveys produced by Hewitt & Associates and the Paper Industry Compensation
Association as its principal resources in this regard.
BASE SALARY
Base salary is a primary component of the Company's officer compensation
arrangements. Executive officer salaries are administered by the Compensation
Committee to ensure they remain competitive with
6
<PAGE> 10
those of companies of comparable revenues and similar industries. As stated
above, the Company periodically engages compensation consultants and surveys
industry data for this purpose. Based on its review of the survey data, the
Compensation Committee approved certain base salary increases for 1997 for the
Company's senior officers and recommended an increase, which the Board approved,
in Mr. Brown's base salary from $445,000 to $510,000.
LONG TERM INCENTIVES
The Compensation Committee believes that share ownership by executives is
important to align the interests and outlook of executives with those of the
shareholders. The Company's 1993 Key Employees' Share Ownership Plan, which
expired on December 31, 1997, provided for awards of stock options and stock
purchase rights and provided that, in making awards, the Compensation Committee
should give particular consideration to employees who have taken advantage of
opportunities to increase their share ownership. During 1997, the Compensation
Committee granted to employees stock options, stock purchase rights and
accompanying bonus share rights with respect to an aggregate of 194,945 shares,
taking into account each employee's functions, responsibilities and ability to
contribute to Company performance. Mr. Brown participated in the Company's 1993
Key Employees' Share Ownership Plan, on the same basis as that of all other
participating executives, with the amount of stock options granted to him being
substantially the same, in proportion to his base salary, as the amounts granted
to other senior executives.
The Compensation Committee has approved, subject to Shareholder approval at
the 1998 Annual Meeting, the Company's 1998 Incentive Plan to replace the 1993
Key Employees' Share Ownership Plan as the Company's stock and annual incentive
compensation plan. The principal features of the 1998 Incentive Plan are
described under "Approval of the 1998 Key Employee Incentive Compensation Plan"
in this proxy statement. The Committee intends to use the 1998 Incentive Plan
primarily to make annual cash bonus and stock option awards to participants,
with the amount of such awards being based on the extent to which the Company
achieves pre-established targets for economic profit (after-tax operating income
minus the cost of the Company's debt and equity capital) and earnings per share.
INCENTIVE BONUS PLAN
The Company has maintained an Incentive Bonus Plan pursuant to which
participants received annual bonuses based on Company performance (this
Incentive Bonus Plan will be replaced by the 1998 Incentive Plan). Approximately
56 executives participated in this plan in 1997. Each year the Compensation
Committee establishes a formula pursuant to which the amount of the bonuses for
that year is to be determined, based on some measure or measures of Company
performance. For 1997, bonuses under the plan were determined based on the
amount by which 1997 net income from continuing operations exceeded 1996 income
from continuing operations. Under the 1997 formula, increases in net income from
continuing operations of 0%-25% over 1996 levels would yield participant bonuses
of 0%-60% of base salary depending upon the exact amount of the increase in net
income from continuing operations. Net income from continuing operations for
1997 was approximately $51.1 million, a decrease of 11.7% over 1996, and
application of the 1997 bonus formula yielded no bonuses for 1997. Mr. Brown
participated in the Company's Incentive Bonus Plan, and, as was the case with
the other participants in the Incentive Bonus Plan, received no bonus in 1997.
Thus, Mr. Brown's 1997 bonus compensation was dependent upon Company performance
to the extent that he received no bonus compensation when the Company achieved
no increase in net income from continuing operations.
CORPORATE TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code prohibits publicly held
corporations from deducting as an expense for tax purposes the amount by which
compensation paid to any of the Company's chief executive officer or four other
most highly compensated executive officers exceeds $1,000,000, unless such
compensation qualifies as "performance-based." Although the current cash
compensation levels of the Company's executives generally remain well below the
$1,000,000 limit, and the remaining compensation payable under the Company's
1993 Key Employees' Share Ownership Plan to such executive officers consists of
incentive stock options under Section 422 of the Internal Revenue Code, for
which the Company generally is not entitled a
7
<PAGE> 11
deduction, the Compensation Committee has considered the implications of Section
162(m) in proposing the 1998 Incentive Plan and intends that the stock option
component of compensation payable under the 1998 Incentive Plan will qualify as
"performance-based" compensation that is exempt from the Section 162(m)
deduction limitations.
COMPENSATION COMMITTEE:
JAMES E. ROGERS, CHAIRMAN
MAXINE FRANCIS FORREST
JOHN D. MUNFORD
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last completed fiscal year, no member of the Compensation and
Employee Benefits Committee was an employee or officer of the Company. Mr.
Russell M. Robinson, II, who is the Chairman of the Board of Directors and was a
member of the Compensation and Employee Benefits Committee until his resignation
from the Committee in April 1997, is an officer, a director and a shareholder of
the firm of Robinson, Bradshaw & Hinson, P.A., which was retained to perform
legal services for the Company and its subsidiaries during the last fiscal year.
It is anticipated that the firm will continue to provide legal services to the
Company and its subsidiaries during the current fiscal year. In light of certain
amendments to the Section 16 rules under the Securities Exchange Act of 1934 and
the expiration of certain transition rules under Section 162(m) of the Internal
Revenue Code, Mr. Robinson resigned from the Compensation and Employee Benefits
Committee in April 1997 to ensure that the Compensation Committee would be
composed solely of "non-employee directors" for purposes of the Section 16 rules
and "outside directors" for purposes of Section 162(m).
Summary Compensation Table. The following table sets forth information
concerning the compensation for the years ended December 31, 1995, 1996 and 1997
for those persons who were, at December 31, 1997, the chief executive officer of
the Company and the Company's four other most highly compensated executive
officers (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -----------------------
---------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
------------------ ---- -------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas V. Brown,.................... 1997 $499,167 $ 0 -- --(2) 8,000(4) $4,700(7)
President and Chief 1996 $440,833 $320,045 -- -- 8,000(5) $1,560(8)
Executive Officer 1995 $420,000 $106,940(1) -- $13,038(3) 8,000(6) $1,026(8)
James L. Walden,.................... 1997 $296,006 $ 0 -- --(9) 4,500(10) $3,200(12)
Vice President 1996 $285,007 $206,915 -- -- 4,500(11) --
1995 $270,400 $ 55,973 -- -- 4,500(6) --
Bob M. Prillaman,................... 1997 $252,471 $ 0 -- --(9) 4,500(10) $3,200(12)
Senior Vice President 1996 $250,771 $182,060 -- -- 4,500(11) --
1995 $237,492 $ 49,161 -- -- 4,500(6) --
Jimmy A. Russell,................... 1997 $242,287 $ 0 -- --(13) 5,000(10) $3,200(12)
Vice President 1996 $223,486 $162,251 -- -- 4,000(11) --
1995 $208,619 $ 43,184 -- -- 4,000(6) --
Edward G. Schmitt................... 1997(14) $213,024 $ 0 -- --(15) 4,500(10) $3,200(12)
Vice President
</TABLE>
- ---------------
(1) Pursuant to the Company's Incentive Bonus Plan, 30% of this amount was paid
to Mr. Brown in bonus shares rather than cash, valued at the then current
market price of the Company's common shares, and
8
<PAGE> 12
a like number of stock purchase rights held by Mr. Brown under the 1993 Key
Employees' Share Ownership Plan (the "1993 Share Plan") were cancelled. Mr.
Brown also received, without consideration, one restricted bonus share (the
value of which is reflected in the Restricted Stock Awards column) for each
two bonus shares awarded. Although the restricted bonus shares are fully
vested and pay dividends at the normal rate upon issuance, they are subject
to certain forfeiture and transfer restrictions under the terms of the 1993
Share Plan and Incentive Bonus Plan.
(2) As of December 31, 1997, Mr. Brown held a total of 13,350 restricted common
shares valued at $457,238.
(3) Amount represents the fair market value on the date of issuance of 596
restricted bonus shares. See footnote 1.
(4) Amount represents a grant of incentive options under the 1993 Plan. All
such options are currently unvested, but will vest over four years
beginning on February 5, 2000 in annual increments of approximately 14%,
41%, 41% and 4%.
(5) Amount represents a grant of incentive options under the 1993 Plan. Such
stock options are currently 18% vested, and will continue vesting over two
years on February 2 of 1999 and 2000 in annual increments of approximately
39% and 43%, respectively.
(6) Amount represents a grant of incentive options under the 1993 Share Plan.
Such stock options are currently approximately 50% vested, and will
continue vesting at the approximate rate of 25% per year on June 6 of each
year through 1999.
(7) Amount includes $3,200 in employer matching contributions under the
Company's 401(k) Plan and $1,500 representing the portion of term life
insurance premiums paid by the Company on terms not otherwise available to
all salaried employees.
(8) Amount represents the portion of term life insurance premiums paid by the
Company on terms not otherwise available to all salaried employees.
(9) As of December 31, 1997, this Named Officer held a total of 7,500
restricted common shares valued at $256,875.
(10) This amount represents a grant of incentive options under the 1993 Share
Plan. Such options are currently 25% vested, and will continue vesting at a
rate of 25% per year on each February 5 through 2001.
(11) Amount represents a grant of incentive options under the 1993 Share Plan.
Such stock options are currently 50% vested, and will continue vesting at
the rate of 25% per year on February 2 of each year through 2000.
(12) Amount includes $3,200 in employer matching contributions under the
Company's 401(k) plan.
(13) As of December 31, 1997, Mr. Russell held a total of 5,850 restricted
common shares valued at $200,363.
(14) Mr. Schmitt did not become an executive officer of the Company until 1997.
(15) As of December 31, 1997, Mr. Schmitt held a total of 5,000 restricted
common shares valued at $171,250.
9
<PAGE> 13
Option Grants Table. The following table sets forth certain information
concerning grants of stock options to the Named Officers during the year ended
December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#) YEAR ($/SH) DATE 5% ($) 10% ($)
---- ---------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas V. Brown..................... 8,000(1) 4.2% $30.125 2005 $115,064 $275,608
James L. Walden..................... 4,500(2) 2.4% $30.125 2005 $ 64,724 $155,030
Bob M. Prillaman.................... 4,500(2) 2.4% $30.125 2005 $ 64,724 $155,030
Jimmy A. Russell.................... 5,000(2) 2.6% $30.125 2005 $ 71,915 $172,255
Edward G. Schmitt................... 4,500(2) 2.4% $30.125 2005 $ 64,724 $155,030
</TABLE>
- ---------------
(1) This amount represents the number of shares of common stock underlying
grants of incentive stock options under the 1993 Share Plan. All of these
options are currently unvested, but will vest over four years beginning on
February 5, 2000 in annual increments of approximately 14%, 41%, 41% and 4%.
(2) These amounts represent the number of shares of common stock underlying
grants of incentive stock options under the 1993 Share Plan. These options
are currently 25% vested, and will continue vesting at the rate of 25% per
year on February 5 of each year through 2001.
Option Exercises and Year-End Value Table. The following table sets forth
certain information concerning the exercise of stock options by the Named
Officers during 1997 and unexercised options held as of December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF
UNEXERCISED OPTIONS UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED VALUE AT FY-END (#) OPTIONS AT FY-END ($)(1)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas V. Brown.......... 18,750 $604,688 116,698 22,052 $3,310,934 $247,254
1,469 $ 0
735 $ 21,591
Bob M. Prillaman......... -- -- 11,250 11,250 $ 199,125 $122,063
James L. Walden.......... -- -- 23,250 15,250 $ 397,125 $188,063
Jimmy A. Russell......... 10,000 $251,750 9,125 10,875 $ 160,344 $110,281
10,000 $178,750
Edward G. Schmitt........ -- -- 7,875 9,625 $ 138,219 $ 96,720
</TABLE>
- ---------------
(1) The fair market value used for computations in this column was $34.25, which
was the closing market price of the Company's Common Shares on December 31,
1997.
Retirement Plans. Substantially all of the Company's employees participate
in a non-contributory defined benefit pension plan. The pension plan provides
for retirement, disability and death benefits. Employees who retire at the
normal retirement age of 65 and receive their benefits as a single life annuity
are entitled to annual pension benefits equal to 1.35% of their average annual
compensation multiplied by the number of years of credited service (not greater
than 33 years), less .65% of final average annual compensation (up to the
taxable wage base as established by the Social Security Administration) for each
year of credited service at normal retirement date (not greater than 33 years).
Average annual compensation
10
<PAGE> 14
is the highest average compensation received by an employee for any consecutive
five-year period during the last 10 consecutive plan years of an employee's
participation in the plan. Average annual compensation is defined as an
employee's gross wages, excluding fringe benefits and deferred compensation
(salary and bonus columns of the Summary Compensation Table less any deferred
compensation included in the salary column), and final average compensation is
defined as average annual compensation up to the taxable wage base as determined
by the Social Security Administration.
The Company also maintains a Supplemental Executive Retirement Plan
("SERP"), which supplements the Company's pension plan benefits by providing to
certain highly compensated employees the additional retirement benefits to which
they otherwise would be entitled under the Company's pension plan in the absence
of certain limitations imposed by the Internal Revenue Code. The additional
benefits payable under the SERP will be based on the same formula as the pension
plan, but without regard to the taxable wage base established by the Social
Security Administration or the 33-year maximum limit on credited years of
service.
The following table shows the estimated annual benefits payable upon
retirement to employees participating in the Company's non-contributory defined
benefit pension plan, as supplemented by the SERP, at specified compensation
levels and years of service:
COMBINED RETIREMENT PLANS ESTIMATED ANNUAL BENEFITS
<TABLE>
<CAPTION>
CREDITED YEARS OF SERVICE
AVERAGE ANNUAL -----------------------------------------------------------------------------------
COMPENSATION 10 15 20 25 30 35 40 45
- -------------- ------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$150,000 $18,227 $27,340 $ 36,453 $ 45,567 $ 54,680 $ 63,793 $ 72,907 $ 82,020
200,000 24,977 37,465 49,953 62,442 74,930 87,418 99,907 112,395
250,000 31,727 47,590 63,453 79,317 95,180 111,043 126,907 142,770
300,000 38,477 57,715 76,953 96,192 115,430 134,668 153,907 173,145
350,000 45,227 67,840 90,453 113,067 135,680 158,293 180,907 203,520
400,000 51,977 77,965 103,953 129,942 155,930 181,918 207,907 233,895
450,000 58,727 88,090 117,453 146,817 176,180 205,543 234,907 264,270
500,000 65,477 98,215 130,953 163,692 196,430 229,168 261,907 294,645
</TABLE>
At December 31, 1997, the estimated credited years of service and average
annual compensation under the retirement plans for each of the Named Officers
were as follows: Thomas V. Brown, 35 years and $528,463 (credited years of
service include term of service with former employer in accordance with Mr.
Brown's employment agreement); James L. Walden, 5 years and $340,044; Bob M.
Prillaman, 29 years and $150,000 (Mr. Prillaman participates only in the pension
plan); and Jimmy A. Russell, 22 years and $246,504; and Edward G. Schmitt, 23
years and $210,390 (credited years of service include term of service with
former employer).
Employment Agreements. The Company entered into an employment agreement,
effective January 1, 1991, with Thomas V. Brown. Pursuant to the employment
agreement, the annual base salary of Mr. Brown was established for the first
year of employment at $350,000. Future increases in such base salary are
determined by the Compensation and Employee Benefits Committee. Pursuant to the
employment agreement, the Company granted to Mr. Brown options to purchase
120,000 shares of Common Stock at $4.00 per share, which expire January 1, 2001,
and which were subject to vesting at a rate of 20% per year over a five-year
period. As of December 31, 1997, options for the 120,000 shares were fully
vested. Pursuant to the employment agreement, the Company has provided Mr. Brown
with $1,000,000 in term life insurance, the initiation fee and monthly dues for
a local country club, an annual $5,000 allowance for financial planning and tax
preparation services and travel and accident insurance in the amount of
$1,000,000.
Under Mr. Brown's employment agreement, the Company has agreed to pay Mr.
Brown an excess benefit to the extent that the pension benefit Mr. Brown would
have received under his former employer's benefit plan (assuming Mr. Brown's
term of service with his prior employer continued uninterrupted until his
termination of service with the Company) exceeds his benefit from the Company.
Under this alternate calculation, this
11
<PAGE> 15
benefit is equal to approximately 1.5% of Mr. Brown's annual average
compensation (less certain adjustments).
Mr. Brown's employment agreement runs for an indefinite term, but may be
terminated by the Company or Mr. Brown with or without cause upon 60 days' prior
notice. Certain terms of the agreement (i) providing for one year's severance
pay to Mr. Brown in the event of his termination by the Company without cause
and (ii) prohibiting Mr. Brown from competing with the Company for one year
following his voluntary termination of employment with the Company expired on
January 1, 1996.
The Company entered into an employment agreement with James L. Walden on
January 25, 1993 to establish Mr. Walden's compensation during the first year of
his employment. Under the employment agreement, Mr. Walden's base salary for his
first year of employment was set at $250,000, with future increases to be
determined by the Compensation and Employee Benefits Committee. The agreement
also provided Mr. Walden with a guaranteed minimum bonus of 10% of his base
salary for the first year and provided that Mr. Walden was eligible for
immediate participation in the 1993 Key Employees' Share Ownership Plan and the
Company's Incentive Bonus Plan. Pursuant to the employment agreement, the
Company granted Mr. Walden options to purchase 20,000 shares of Common Stock at
$17.75, the fair market value of such shares on the date of grant. These options
expire on February 5, 2003 and are subject to vesting at a rate of 20% per year
over a five-year period. Options for these 20,000 shares were fully vested as of
February 5, 1998. Under the agreement, the Company also has provided Mr. Walden
with term life insurance in an amount equal two times his annual base salary,
travel and accident insurance in the amount of $500,000, an annual $5,000
allowance for financial planning and tax preparation services and an allowance
for local country club dues of up to $3,000 per year.
APPROVAL OF THE 1998 KEY EMPLOYEE INCENTIVE COMPENSATION PLAN
The following summary of the 1998 Incentive Plan is qualified in its
entirety by reference to the text of the 1998 Incentive Plan, a copy of which
may be obtained without charge upon request to the Company, P.O. Box 115,
Austell, Georgia 30168, Attention: Marinan R. Mays, Corporate Secretary.
Purpose. The 1998 Incentive Plan was adopted by the Board to align the
interests of participating key employees with the interest of Caraustar's
shareholders, encourage equity ownership in the Company by participating key
employees, and provide an incentive to participating key employees for
continuous employment with the Company.
Shares Available for Issuance. The 1998 Incentive Plan provides that an
aggregate of 1,600,000 Common Shares is authorized for issuance upon exercise of
options and restricted share rights awarded under the 1998 Incentive Plan and
for the award of unrestricted Common Shares, such number being subject to
adjustment for stock splits, stock dividends, and certain other types of
recapitalizations. The 1998 Incentive Plan provides that on the date of each
annual shareholder meeting during the term of the 1998 Incentive Plan (other
than the 1998 Annual Meeting), the number of Common Shares available for
issuance under the 1998 Incentive Plan will be increased by an amount equal to
6.3% of the net increase in the number of issued and outstanding Common Shares
since the previous annual shareholder meeting, excluding shares issued pursuant
to director or employee plans of the Company (including the 1998 Incentive
Plan). In addition, the maximum number of shares available for issuance under
the 1998 Incentive Plan will increase by the number of shares subject to stock
options awarded as a result of participants' elections to receive such options
in lieu of cash Bonus Program awards, as more fully discussed below. In
calculating the maximum number of Common Shares issuable under the 1998
Incentive Plan, (i) Common Shares granted outright or issued as a result of the
exercise of stock options shall reduce the number of shares issuable, (ii)
Common Shares subject to a stock option terminated without the issuance of such
shares shall again be available for issuance, but shares of restricted stock
that are forfeited and shares subject to restricted share rights terminated
without the issuance of such shares shall not be again available for issuance,
and (iii) Common Shares received by the Company in connection with the exercise
of stock options or in connection with the payment of withholding taxes shall
again be available for issuance. The maximum number of shares covered by
incentive stock options that may be granted under the 1998 Incentive Plan is
1,600,000.
12
<PAGE> 16
Term. No award under the 1998 Incentive Plan shall be exercisable or
payable until the shareholders have approved the 1998 Incentive Plan, and no
awards shall be granted after April 15, 2003.
Administration and Participants. The 1998 Incentive Plan will be
administered by a committee of two or more directors, which committee initially
shall be the Compensation and Employee Benefits Committee of the Board (the
"Committee"). The Committee will have full discretionary authority in
interpreting the 1998 Incentive Plan. The Committee will select key employees to
participate in award programs under the 1998 Incentive Plan. In so selecting key
employees to participate, the Committee will consider relevant factors,
including the key employee's functions, responsibilities and the value of the
employee's past and future services for the Company's profitability and sound
growth. There currently are approximately 60 key employees eligible to
participate in the 1998 Incentive Plan.
General Focus. The Committee may grant awards under the 1998 Incentive
Plan in the form of stock options, restricted share rights exercisable for
shares of restricted stock, Common Shares and cash. While the Committee may make
discretionary awards of stock options and restricted share rights to key
employees (in the case of options, up to a maximum per key employee per calendar
year of options to purchase 10,000 shares), the focus of the 1998 Incentive Plan
is to make awards that are contingent upon the attainment of certain measurable
Company performance goals. The 1998 Incentive Plan has two such performance
award programs: the Stock Option Program (the "Option Program") and the Bonus
Award Program (the "Bonus Program"). Grants under the Option Program and Bonus
Program are intended to qualify as "performance-based compensation" under the
Code.
Option Program. Under the Option Program, within the first ninety (90)
days of a one-year option period (intended to be a calendar year period), the
Committee will select key employees to participate for each such option period,
and will set an option target for each such participant. Within the first ninety
(90) days of each option period the Committee also will set an option
performance matrix for each option period, which matrix, along with a
participant's option target, will determine the participant's option period
award. The criteria the Committee may use in the option performance matrix
include economic profit, return on net assets, return on shareholders' equity,
return on assets, return on capital, earnings per share, net earnings, operating
earnings and price per share. The Committee intends to use economic profit as
the primary performance criterion. Economic profit is a measure of the after-tax
operating profit of the Company, less a charge for the cost of all debt and
equity capital of the Company. If the minimum economic profit is not met for an
option period, no Option Program awards will be made for that period. After the
minimum goals are met, a participant's award for an option period will increase
as the actual performance increases above the minimum.
A participant's Option Program award may be paid in incentive stock options
(intended to qualify as such under Section 422 of the Code) or non-qualified
options, or a combination of both, as determined by the Committee. A
participant's Option Program award will be payable in standard options,
performance stock options, or a combination of both, as determined by the option
performance matrix. Standard stock options have an exercise price equal to the
price of a Common Share on the date of grant. Performance options have an
exercise price equal to 120% of the share price on the date of grant. The
greater the actual performance above the minimum goal for an option period, the
more standard options will be granted; the closer the actual performance to the
minimum goal, the more performance options will be granted. Stock options issued
under the 1998 Incentive Plan will have a vesting schedule determined by the
Committee and a term of no longer than ten years, all as set forth in individual
stock option agreements.
Within the first ninety (90) days of the calendar year in which the award
is made, a participant may elect to receive up to 50% of the value of his or her
Option Program award in the form of restricted share rights. Each restricted
share right will allow a participant to receive one share of restricted stock
upon the purchase by the participant of two (2) unrestricted Common Shares
within 5 years of date of grant of the restricted share right. Restricted stock
so issued will have a transfer restriction period to be set by the Committee,
currently contemplated to be five (5) years.
The maximum number of Common Shares covered by options that may be granted
pursuant to the Option Program to any participant in any calendar year is
100,000. The Common Shares covered by restricted
13
<PAGE> 17
share rights granted pursuant to the Option Program to any participant in any
calendar year may not have a value on the date of grant in excess of $400,000.
Bonus Program. Under the Bonus Program, the Committee will select key
employees to participate for one-year bonus periods (each also intended to be a
calendar year). Within the first ninety (90) days of each bonus period, the
Committee will establish a bonus performance matrix which, along with the
participant's base salary, will determine the participant's award. Like the
option performance matrix, the bonus matrix will have performance criteria and
minimum goals that must be reached before any award is made. It currently is
contemplated that the performance criteria for the bonus period will be the
economic profit and earnings per share. If the performance criteria minimum
goals are met, a participant will be paid a bonus equal to a certain percentage
of the participant's annual base salary, such percentage to increase as actual
performance exceeds the minimum goal, up to a maximum of 100% of the
participant's annual salary.
Within the first ninety (90) days of the bonus period to which the award
relates, the participant may elect to receive his or her Bonus Program award in
the form of fully vested non-qualified stock options, up to a maximum of 50% of
the participant's Bonus Program award. In addition, to the extent the
participant's Common Share ownership (as defined in the 1998 Incentive Plan) is
below the participant's target stock ownership level set by the Committee, the
participant must take his or her Bonus Program award in the form of unrestricted
Common Stock, up to a maximum of 30% of participant's Bonus Program award.
The 1998 Incentive Plan provides for partial Bonus Program awards in the
event of partial participation in a bonus period but does not provide for such
partial Option Program awards.
Any Option Program and Bonus Program awards for calendar year 1998 will be
conditioned upon shareholder approval of the 1998 Incentive Plan.
Termination of Employment. Upon the termination of a participant's
employment upon death or Disability (as defined in the 1998 Incentive Plan),
restricted stock awarded to the participant will become unrestricted stock,
outstanding stock options awarded to a participant will become fully vested and
exercisable for a period of up to one year after the date of termination (up to
the original expiration date) and restricted share rights awarded to a
participant will become exercisable for up to one year after the date of
termination (up to the original expiration date) for unrestricted stock instead
of restricted stock.
In the event of the termination of a participant's employment because of
Retirement (as defined in the 1998 Incentive Plan), outstanding restricted
shares awarded to the participant will remain outstanding but continue to be
restricted, provided that if the participant dies after Retirement but during a
restriction period, the restrictions will lapse. With respect to outstanding
stock options awarded to a Participant, upon Retirement the options will
continue to remain outstanding and will not be affected by the Retirement,
provided that in the event the participant dies while options awarded to him are
outstanding, such options will become fully vested and exercisable for a period
of up to one year after death (up until the original expiration date of the
option). Upon a participant's Retirement, outstanding restricted share rights
awarded to a participant will not be affected by Retirement, provided that in
the event the participant dies while restricted share rights awarded to him are
outstanding, such restricted share rights shall be exercisable for a period of
up to one year after death (up to the original expiration date of the restricted
share right) for unrestricted shares instead of restricted shares.
In the event of termination of a participant's employment for any reason
other than death, Disability or Retirement, any restricted shares awarded to the
participant still subject to a restriction period will be forfeited, stock
options awarded to the participant will be exercisable only for a period of 90
days after termination and only to the extent exercisable on the date of
termination and unexercised restricted share rights will terminate.
Payment of Option Exercise Price. The option price of an option may be
paid in cash, Common Shares, a combination of the foregoing, or such other
consideration as the Committee may deem appropriate. In addition, the Committee
may permit a participant to elect to pay the option price upon the exercise of a
stock option by authorizing a third party to sell Common Shares (or a sufficient
portion of the shares) acquired
14
<PAGE> 18
upon exercise of the stock option and remit to the Company a sufficient portion
of the sale proceeds to pay the entire option price and any tax withholding
resulting from such exercise.
Transferability of Awards. Awards may be transferred by a participant by
will or the laws of descent and distribution, and awards other than incentive
stock options may be transferred by a qualified domestic relations order. In
addition, at the discretion of the Committee, awards other than incentive stock
options may be transferred to a participant by gift or other transfer to (i) a
trust or estate in which the participant or such person's spouse, or other
immediate family member or entity owned by such a person, has an exclusive
interest, or (ii) the participant's spouse or other immediate family member.
Amendment and Termination of Plan. The Committee may suspend or terminate
the 1998 Incentive Plan without notice. The Committee may amend the 1998
Incentive Plan, but may not, without shareholder approval, adopt any amendment
that would require approval of the shareholders pursuant to Section 16 of the
Securities Exchange Act of 1934 or Section 162(m) of the Code (as it affects
"covered employees").
Other. The 1998 Incentive Plan provides that the Committee may elect to
accelerate by individual grant agreement the vesting or exercisability of awards
upon a change of control or ownership. At the discretion of the Committee,
payment of any award, dividend, or dividend equivalent, or any portion thereof,
may be deferred by a Participant until such time as the Committee may establish.
Stock based awards will be entitled to receive dividends payable on Common
Shares, subject to the Committee's discretion. The Committee intends that all
stock based awards under the 1998 Incentive Plan will qualify to the extent
possible for exemption from the short-swing profit rules of Section 16 under the
Securities Exchange Act of 1934.
Certain Federal Income Tax Consequences. Certain tax consequences of the
1998 Incentive Plan under current federal law are summarized in the following
discussion, which deals with the general tax principles applicable to the 1998
Incentive Plan, and is intended for general information only. Alternative
minimum tax and state and local income taxes are not discussed, and may vary
depending on individual circumstances and from locality to locality.
For federal income tax purposes, the recipient of non-qualified stock
options granted under the 1998 Incentive Plan will not have taxable income upon
the grant of the option, nor will the Company then be entitled to any deduction.
Generally, upon exercise of non-qualified stock options the optionee will
realize ordinary income, and the Company will be entitled to a deduction, in an
amount equal to the difference between the option exercise price and the fair
market value of the stock at the date of exercise. An optionee's basis for the
stock for purposes of determining his gain or loss on his subsequent disposition
of the shares generally will be the fair market value of the stock on the date
of exercise.
There is no taxable income to an employee when an incentive stock option is
granted to him or when that option is exercised; however, the amount by which
the fair market value of the shares at the time of exercise exceeds the option
price will be an "item of tax preference" for the optionee. Gain realized by an
optionee upon sale of stock issued on exercise of an incentive stock option is
taxable at capital gains rates, and no tax deduction is available to the
Company, unless the optionee disposes of the shares within two years after the
date of grant of the option or within one year of the date the shares were
transferred to the optionee. In such event the difference between the option
exercise price and the fair market value of the shares on the date of the
option's exercise will be taxed at ordinary income rates, and the Company will
be entitled to a deduction to the extent the employee must recognize ordinary
income. An incentive stock option exercised more than three months after an
optionee's retirement from employment, other than by reason of death or
disability, will be taxed as a non-qualified stock option, with the optionee
deemed to have received income upon such exercise taxable at ordinary income
rates. The Company will be entitled to a tax deduction equal to the ordinary
income, if any, realized by the optionee.
No taxable income is realized upon the receipt of a restricted share right.
A key employee to whom restricted stock pursuant to a restricted share right is
issued will not have taxable income upon issuance and the Company will not then
be entitled to a deduction, unless in the case of restricted stock an election
is made under Section 83(b) of the Code. However, when restrictions on shares of
restricted stock lapse, such that the shares are no longer subject to repurchase
by the Company, the employee will realize ordinary income and the
15
<PAGE> 19
Company will be entitled to a deduction in an amount equal to the fair market
value of the shares at the date such restrictions lapse, less the purchase price
therefor. If an election is made under Section 83(b) with respect to restricted
stock, the employee will realize ordinary income at the date of issuance equal
to the difference between the fair market value of the shares at that date less
the purchase price therefor and the Company will be entitled to a deduction in
the same amount.
Under Section 162(m) of the Code, income tax deductions of publicly-traded
companies may be limited to the extent total compensation (including base
salary, annual bonus, stock option exercises and non-qualified benefits) for
certain executive officers exceeds $1 million (less the amount of any "excess
parachute payments" as defined in Section 280G of the Code) in any one year. It
is the Company's policy generally to design the Company's compensation programs
to conform with Section 162(m) so that total compensation paid to any employee
will not exceed $1 million in any one year, except for compensation payments in
excess of $1 million which qualify as "performance-based." The Company intends
to comply with other requirements of the performance-based compensation
exclusion under Section 162(m), including option pricing requirements and
requirements governing the administration of the 1998 Incentive Plan, so that
the deductibility of compensation paid to top executives thereunder is not
expected to be disallowed. Shareholder approval of the 1998 Incentive Plan is
required for certain awards to qualify as "performance-based" under Section
162(m).
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE 1998 INCENTIVE
PLAN.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board, upon the recommendation of the Audit Committee, has approved the
selection of the firm of Arthur Andersen LLP as independent public accountants
to examine the books of the Company and its subsidiaries for the current year,
to report on the consolidated statement of financial position and related
statement of earnings of the Company and its subsidiaries, and to perform such
other appropriate accounting services as may be required by the Board. The Board
recommends that the shareholders vote in favor of ratifying and approving the
selection of Arthur Andersen LLP for the purposes set forth above. The Company
has been advised by Arthur Andersen LLP that the firm did not have any direct
financial interest or any material indirect financial interest in the Company
and its subsidiaries during the Company's most recent fiscal year.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they so desire, and
they are expected to be available to respond to appropriate questions.
Approval of the proposal requires the affirmative vote of a majority of the
Common Shares voted on the proposal. Should the shareholders vote negatively,
the Board of Directors will consider a change in auditors for the next year.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFYING THE SELECTION OF
ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS TO AUDIT THE BOOKS OF THE
COMPANY AND ITS SUBSIDIARIES FOR THE CURRENT YEAR.
PROPOSALS FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
Shareholders who intend to present proposals for consideration at next
year's annual meeting are advised that any such proposal must be received by the
Secretary of the Company no later than the close of business on November 9, 1998
if such proposal is to be considered for inclusion in the proxy statement and
proxy appointment form relating to that meeting.
OTHER MATTERS
The Board and officers are not aware of any other matters which may be
presented for action at the meeting, but if other matters do properly come
before the meeting, it is intended that the Common Shares
16
<PAGE> 20
represented by the accompanying proxy appointment form will be voted by the
persons named in the form in accordance with their best judgment.
You are cordially invited to attend this year's meeting. However, whether
you plan to attend the meeting or not, you are respectfully urged to sign and
return the enclosed proxy appointment form, which will, of course, be returned
to you at the meeting if you are present and so request.
/s/ RUSSELL M. ROBINSON, II
Russell M. Robinson, II
Chairman of the Board
/s/ THOMAS V. BROWN
Thomas V. Brown
President and Chief Executive Officer
17
<PAGE> 21
(CARAUSTAR LOGO)
<PAGE> 22
APPENDIX
<TABLE>
<S> <C> <C>
REVOCABLE CARAUSTAR INDUSTRIES, INC.
APPOINTMENT ANNUAL MEETING OF SHAREHOLDERS
OF PROXY TO BE HELD ON APRIL 15, 1998
</TABLE>
THIS APPOINTMENT OF PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby constitutes and appoints Russell M. Robinson, II and
Thomas V. Brown as Proxies with full power of substitution to act and vote for
and on behalf of the undersigned, as designated below, all the common shares of
Caraustar Industries, Inc. (the "Company") held of record by the undersigned on
February 20, 1998, at the annual meeting of shareholders to be held at the
Caraustar corporate headquarters, 3100 Washington Street, Austell, Georgia on
April 15, 1998 or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS.
1. ELECTION OF THREE CLASS III DIRECTORS.
<TABLE>
<S> <C> <C>
[ ] FOR all nominees listed below
(except as marked to the contrary below).
<CAPTION>
<S> <C>
[ ] WITHHOLD AUTHORITY
to vote for all nominees listed below
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list below.)
James H. Hance, Jr.; John D. Munford; James E. Rogers
2. PROPOSAL TO APPROVE THE 1998 KEY EMPLOYEE INCENTIVE COMPENSATION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO RATIFY THE BOARD OF DIRECTORS' SELECTION OF ARTHUR ANDERSEN LLP
as the Company's independent public accountants.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Continued on reverse side. Please sign and date on the reverse side and return
in the enclosed postage-prepaid envelope.
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THE PROXIES WILL VOTE FOR THE ELECTION OF THE DIRECTOR NOMINEES NAMED HEREIN
AND FOR THE PROPOSALS UNLESS THE SHAREHOLDER DIRECTS OTHERWISE, IN WHICH CASE
THE PROXIES WILL VOTE AS DIRECTED.
The undersigned acknowledges receipt of the Notice of Annual Meeting and
Proxy Statement dated March 12, 1998, and revokes all Appointments of Proxy
heretofore given by the undersigned.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
DATED: 1998
--------------------,
--------------------------------
Signature
--------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
<PAGE> 23
APPENDIX A
CARAUSTAR INDUSTRIES, INC.
1998 KEY EMPLOYEE INCENTIVE COMPENSATION PLAN
ARTICLE 1
PURPOSE AND TERM OF PLAN
1.1 Purpose. The purposes of this Caraustar Industries, Inc. 1998 Key
Employee Incentive Compensation Plan (the "Plan") are to (1) align the interests
of participating employees of Caraustar Industries, Inc. ("Caraustar") and its
Related Companies (the "Company") with the interests of Caraustar's shareholders
by reinforcing the relationship between participants' rewards and shareholder
value; (2) encourage equity ownership in Caraustar by participants; and (3)
provide an incentive to participants for continuous employment with the Company.
1.2 Term. This Plan will be effective as of March 10, 1998, subject to
the Plan's approval by the shareholders of Caraustar at the 1998 annual
shareholders meeting. No Awards shall be exercisable or payable before such
shareholder approval of the Plan. Awards shall not be granted under this Plan
after April 15, 2003.
ARTICLE 2
DEFINITIONS
2.1 "1993 Plan" shall mean the Caraustar Industries, Inc. 1993 Key
Employees' Share Ownership Plan.
2.2 "Award" means any form of Stock Option, Restricted Share Right,
share of Common Stock or Restricted Stock or cash granted under the Plan to a
Participant by the Committee.
2.3 "Base Salary" shall have the meaning set forth in Section 8.2.
2.4 "Bonus Formula" shall have the meaning set forth in Section 8.3(b).
2.5 "Bonus Matrix" shall have the meaning set forth in Section 8.3.
2.6 "Bonus Period" means the one year periods, as the Committee may
select, over which the attainment of one or more Performance Goals will be
measured for purposes of determining a Participant's right to an Award under the
Bonus Award Program.
2.7 "Caraustar" shall have the meaning set forth in Section 1.1.
<PAGE> 24
2.8 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, including regulations thereunder and successor provisions and
regulations thereto.
2.9 "Committee" shall have the meaning set forth in Section 5.1.
2.10 "Common Stock" shall have the meaning set forth in Section 3.1.
2.11 "Company" has the meaning set forth in Section 1.1.
2.12 "Covered Employee" means an Employee who is a "covered employee"
within the meaning of Section 162(m) of the Code.
2.13 "Disability" means a disability under the terms of the Caraustar
Industries, Inc. Long-Term Disability plan maintained by the Company or any
successor plan thereto.
2.14 "Economic Profit" means a measure of the after-tax operating
profit of the Company less a charge for the cost of all debt and equity capital
of the Company.
2.15 "Effective Date" means the date an Award is determined to be
effective by the Committee upon its grant of such Award. In the case of Stock
Options, the Effective Date shall be the date of grant.
2.16 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor provisions
and rules thereto.
2.17 "Incentive Stock Option" shall have the meaning set forth in
Section 6.2(b).
2.18 "Key Employee" has the meaning set forth in Article 4.
2.19 "Negative Discretion" means the discretion authorized by the Plan
to be applied by the Committee in determining the size of a Bonus Award or a
Stock Option Award if, in the Committee's sole judgment, such application is
appropriate. Negative Discretion may only be used by the Committee to eliminate
or reduce the size of an Award.
2.20 "Non-Qualified Stock Option" shall have the meaning set forth in
Section 6.2(c).
2.21 "Option Period" means the one year periods, as the Committee may
select, over which the attainment of one or more Performance Goals will be
measured for the purpose of determining a Participant's right to an Award under
the Option Program.
2.22 "Option Target Award" means, for an Option Period, the target
Award amount, expressed as a number of Stock Options, established for each
Participant for the Option Period.
2.23 "Participant" means any Key Employee who for an Option Period has
been selected to participate in the Option Program pursuant to Article 7 or who
for a Bonus Period has been selected to participate in the Bonus Program
pursuant to Article 8 or who has been selected
<PAGE> 25
for an Award of a Non-Qualified Traditional Stock Option or Restricted Share
Rights pursuant to Article 9.
2.24 "Performance Criteria" means the one or more criteria that the
Committee shall select for purposes of establishing the Performance Goal(s) for
an Option Period or Bonus Period. The Performance Criteria that will be used to
establish such Performance Goal(s) shall be limited to the following: Economic
Profit, return on net assets, return on shareholders' equity, return on assets,
return on capital, earnings per share, net earnings, operating earnings and
Common Stock price per share.
2.25 "Performance Goal" means, for an Option Period or Bonus Period,
the one or more goals established by the Committee for the Option or Bonus
Period based upon the Performance Criteria. The Committee is authorized at any
time during the first 90 days of an Option Period or Bonus Period, or at any
time thereafter (but only to the extent the exercise of such authority after the
first 90 days of an Option Period or Bonus Period would not cause the Awards
granted to the Covered Employees for the Option Period or Bonus Period to fail
to qualify as "performance-based compensation" under Section 162(m) of the
Code), in its sole and absolute discretion, to adjust or modify the calculation
of a Performance Goal for such Option Period or Bonus Period in order to prevent
the dilution or enlargement of the rights of Participants, (a) in the event of,
or in anticipation of, any unusual or extraordinary corporate item, transaction,
event or development; (b) in recognition of, or in anticipation of, any other
unusual or nonrecurring events affecting the Company, or the financial
statements of the Company, or in response to, or in anticipation of, changes in
applicable laws, regulations, accounting principles, or business conditions; and
(c) in view of the Committee's assessment of the business strategy of the
Company, performance of comparable organizations, economic and business
conditions and any other circumstances deemed relevant.
2.26 "Performance Stock Option" shall have the meaning set forth in
Section 6.2(a).
2.27 "Plan" shall have the meaning set forth in Section 1.1.
2.28 "Related Companies" means any company during any period in which
it is a "parent company" (as that term is defined in Section 424(e) of the Code)
with respect to the Company, or a "subsidiary corporation" (as that term is
defined in Code Section 424(f) of the Code) with respect to Caraustar.
2.29 "Restricted Share Right" shall have the meaning set forth in
Section 6.4.
2.30 "Restricted Share Right Percentage" shall have the meaning set
forth in Section 7.5.
2.31 "Restricted Stock" means Common Stock subject to the restrictions
set forth in Section 6.3 awarded to a Key Employee pursuant to the exercise of a
Restricted Stock Right.
2.32 "Restriction Period" means the period of time beginning on the
Effective Date of an Award of Restricted Stock and ending five (5) year(s) after
such date, or such other period as the Committee shall determine in its sole
discretion.
<PAGE> 26
2.33 "Retirement" means a termination of employment from the Company on
or after attainment of Normal Retirement Age as defined under the Caraustar
Industries, Inc. Defined Benefit Pension Plan, or such other termination of
employment from the Company after age 55 specifically approved by the Committee,
in its sole discretion, as a "Retirement."
2.34 "Stock Option" means an Award granted to a Key Employee in the
form of a Traditional or Performance Stock Option (either Non-Qualified or
Incentive) pursuant to Article 7, 8 or 9.
2.35 "Stock Option Matrix" shall have the meaning set forth in Section
7.4.
2.36 "Stock Option Percentage" shall have the meaning set forth in
Section 8.4(c).
2.37 "Target Ownership Level" for any Participant shall mean the target
ownership of shares of Common Stock (Restricted or unrestricted) set by the
Committee for such Participant. For purposes of determining a Participant's
Target Ownership Level, there shall be counted all shares of Common Stock
(restricted or unrestricted) owned by (i) the Participant, the Participant's
spouse or dependent children, either directly or indirectly through nominees,
including shares held in the Participant's account in the Caraustar Industries,
Inc. Employee Savings Plan 401(k) and any IRA account of the Participant and
(ii) any trust over which the Participant has voting control, to the extent such
shares were contributed to the trust by the Participant.
2.38 "Traditional Stock Option" shall have the meaning set forth in
Section 6.2(a).
2.39 "Underlying Shares" shall have the meaning set forth in Section
6.3(a).
ARTICLE 3
SHARES SUBJECT TO PLAN
3.1 Available Shares.
(a) Shares of stock which may be issued under the Plan shall be
authorized and unissued shares of common stock of Caraustar ("Common Stock").
The maximum number of shares of Common Stock which may be issued under the Plan
shall be 1,600,000, subject to adjustment as set forth in this Article 3. On the
date of each annual Caraustar shareholders meeting during the term of this Plan
(other than the 1998 meeting), the number of shares of Common Stock available
for issuance under the Plan shall be increased by an amount equal to 6.3% of the
net increase in the number of issued and outstanding shares of Common Stock
since the previous annual Caraustar shareholders meeting, excluding in each case
shares issued pursuant to director or employee benefit plans of the Company
(including but not limited to this Plan and the 1993 Plan); provided that in the
event the shares available for issuance under this Plan are increased pursuant
to this sentence as a result of a share issuance, no adjustment will be made
pursuant to Section 3.2 with respect to such share issuance; provided, further,
that any reduction in shares outstanding resulting from the receipt by the
Company of shares as set forth in Section
<PAGE> 27
3.1(b)(iii) shall not be counted in determining such net increase. In addition,
the number of shares of Common Stock available for issuance under the Plan shall
be increased by an amount equal to the number of shares covered by Stock Options
issued pursuant to Section 8.4.
(b) For purposes of calculating the maximum number of shares of
Common Stock which may be issued under the Plan:
(i) all the shares of Common Stock and shares of Restricted
Stock issued directly or as a result of the exercise of Stock Options
and Restricted Share Rights (including the shares, if any, withheld for
tax withholding requirements) shall be counted.
(ii) any shares of Common Stock subject to a Stock Option
that for any reason is terminated unexercised or expires shall again be
available for issuance under the Plan, but shares of Restricted Stock
that are forfeited or shares subject to Restricted Share Rights
terminated without the issuance of shares shall not again be available
for issuance under the Plan.
(iii) shares of Common Stock received by the Company in
connection with the exercise of Stock Options by delivery of other
shares of Common Stock, and received in connection with payment of
withholding taxes related to Awards under this Plan, shall again be
available for issuance under the Plan.
(c) The maximum number of shares available for issuance under the
Plan shall not be reduced to reflect any dividends or dividend equivalents that
are reinvested into additional shares of Common Stock.
(d) The shares of Common Stock available for issuance under the
Plan may be newly issued shares, authorized and unissued shares, treasury
shares, shares issued and outstanding or shares owned by a Related Company.
3.2 Adjustment to Shares.
(a) In General. The provisions of this Subsection 3.2(a) are
subject to the limitation contained in Subsection 3.2(b). If there is any change
in the number of outstanding shares of Common Stock through the declaration of
stock dividends, stock splits or the like, the number of shares available for
Awards, the shares subject to any Award and the option prices or exercise prices
of Awards shall be automatically adjusted. If there is any change in the number
of outstanding shares of Common Stock through any change in the capital account
of Caraustar, or through a merger, consolidation, separation (including a
spin-off or other distribution of stock or property), reorganization (whether or
not such reorganization comes within the meaning of such term in Section 368(a)
of the Code) or partial or complete liquidation, the Committee shall make
appropriate adjustments in the maximum number of shares of Common Stock that may
be issued under the Plan and any adjustments and/or modifications to outstanding
Awards as it, in its sole discretion, deems appropriate. In event of any other
change in the capital structure or in the Common Stock, the Committee shall also
be authorized to make such appropriate adjustments in
<PAGE> 28
the maximum number of shares of Common Stock available for issuance under the
Plan and any adjustments and/or modifications to outstanding Awards as it, in
its sole discretion, deems appropriate.
(b) Covered Employees. In no event shall the Award of any
Participant who is a Covered Employee be adjusted pursuant to Subsection 3.2(a)
to the extent it would cause such Award to fail to qualify as "performance-based
compensation" under Section 162(m) of the Code.
ARTICLE 4
ELIGIBILITY
Participants in the Plan shall be selected by the Committee from the
executive officers and other key employees of the Company who occupy responsible
managerial or professional positions and who have the capability of making a
substantial contribution to the success of the Company ("Key Employees"). In
making this selection and in determining the form and amount of awards, the
Committee shall consider any factors deemed relevant, including the individual's
functions, responsibilities, value of services to the Company and past and
potential contributions to the Company's profitability and sound growth.
ARTICLE 5
PLAN ADMINISTRATION
5.1 Administration of Plan by Committee. The Plan shall be administered
by a committee of two or more members of the Board of Directors of Caraustar
selected by the Board (the "Committee"), as constituted from time to time.
5.2 Authority of Committee.
(a) The Committee shall have the authority, in its sole discretion
and from time to time, to:
(i) designate the Key Employees eligible to participate in
the Plan;
(ii) grant Awards provided in the Plan in such form and
amount as the Committee shall determine;
(iii) impose such terms, limitations, restrictions and
conditions upon any such Award as the Committee shall deem appropriate,
including but not limited to an acceleration of the vesting and lapsing
of the restrictions of such Award upon a change in control of the
ownership of Caraustar; and
<PAGE> 29
(iv) interpret the Plan, adopt, amend and rescind rules and
regulations relating to the Plan, correct any default, supply any
omission and construe any ambiguity in the Plan, accelerate the
vesting, exercise or payment of any Award when such action would be in
the best interest of the Company and make all other determinations and
take all other action necessary or advisable for the implementation and
administration of the Plan.
(b) The Committee shall have full discretionary authority in all
matters related to the discharge of its responsibilities and the exercise of its
authority under the Plan, including without limitation its construction of the
terms of the Plan and its determination of eligibility for participation and
Awards under the Plan. The decisions and determinations of the Committee and its
action with respect to the Plan shall be final, binding and conclusive upon all
persons having or claiming to have any right or interest in or under the Plan.
(c) No member of the Committee shall be liable for any action
taken or decision made in good faith relating to the Plan or any Award
thereunder.
5.3 Section 162(m) of the Code. With regard to all Covered Employees,
the Plan shall, for all purposes, be interpreted and construed in accordance
with Section 162(m) of the Code, except as provided in Article 9.
5.4 Delegation by Committee. Except to the extent prohibited by
applicable law or the rules of an applicable stock exchange, the Committee may
allocate all or any portion of its responsibilities and powers to any person or
persons selected by it. Any such allocation or delegation may be resolved by the
Committee at any time.
ARTICLE 6
FORMS OF AWARDS
6.1 In General. Awards under the Plan may be in the form of any one or
more of the following:
(a) Traditional Stock Options (either Non-Qualified or Incentive)
as described in Section 6.2(a);
(b) Performance Stock Options (either Non-qualified or Incentive)
as described in Section 6.2(a);
(c) Restricted Stock, as described in Section 6.3;
(d) Restricted Share Rights, as described in Section 6.4;
(e) Shares of Common Stock (unrestricted), as described in Section
8.4(a); and
<PAGE> 30
(f) Cash, as set forth in Article 8.
6.2 Stock Options.
(a) Traditional and Performance Options. Stock Options may be
awarded under the Plan in the form of Traditional Stock Options, Performance
Stock Options, or a combination of both. The price at which Common Stock may be
purchased upon exercise of a Traditional Stock Option shall be 100% of the
closing price at which a share of Common Stock trades on the Effective Date of
the Traditional Stock Option Award, or the next preceding trading day if such
date was not a trading date, on the primary securities exchange on which the
Common Stock is then traded. The price at which Common Stock may be purchased
upon exercise of a Performance Stock Option shall be 120% of the closing price
at which a share of Common Stock trades on the Effective Date of the Performance
Stock Option Award, or the next preceding trading day if such date was not a
trading date, on the primary securities exchange on which the Common Stock is
then traded.
(b) Incentive Stock Options. Stock Options may be issued in the
form of incentive stock options, intended to qualify as such under the
provisions of Section 422 of the Internal Revenue Code of 1986, as amended
("Incentive Stock Options"). To the extent that the aggregate fair market value
(determined on the date the Stock Option is granted) of shares of Common Stock
with respect to which Incentive Stock Options first become exercisable by any
Participant in any calendar year exceeds $100,000, such Stock Options shall be
treated as Non-Qualified Options. The maximum number of shares of Common Stock
that may be issued under this Plan by Incentive Stock Options shall be
1,600,000.
(c) Non-Qualified Stock Options. Stock Options may be issued in the
form of non-qualified stock options (Stock Options that are not Incentive Stock
Options) ("Non-Qualified Stock Options").
(d) Terms and Conditions of Stock Options. A Stock Option shall be
exercisable in whole or in such installments and at such times as may be
determined by the Committee. All Stock Options shall expire not later than 10
years after the Effective Date of the grant. Stock Options shall not be
repriced, i.e., there shall be no grant of a Stock Option(s) to a Participant in
exchange for a Participant's agreement to cancellation of a higher-priced Stock
Option(s) that was previously granted to such Participant. The Committee may, by
way of an award notice or otherwise, establish such other terms, conditions,
restrictions, and limitations, if any, of any Award of Stock Options, provided
they are not inconsistent with the Plan.
(e) Exercise. Upon exercise, the option price of a Stock Option may
be paid in cash, shares of Common Stock, a combination of the foregoing, or such
other consideration as the Committee may deem appropriate. The Committee shall
establish appropriate methods for accepting Common Stock, whether Restricted or
unrestricted, and may impose such conditions as it deems appropriate on the use
of such Common Stock to exercise a Stock Option. Subject to Section 13.12, the
Committee may permit a Participant to elect to pay the option price upon the
exercise of a Stock Option by authorizing a third party to sell shares of Common
Stock (or a sufficient portion of the shares) acquired upon exercise of the
Stock Option and remit to the Company a sufficient portion of the sale proceeds
to pay the entire option price and any tax
<PAGE> 31
withholding resulting from such exercise. The Committee may permit a Participant
to satisfy any amounts required to be withheld under the applicable Federal,
state and local tax laws in effect from time to time, by electing to have the
Company withhold a portion of the shares of Common Stock to be delivered for the
payment of such taxes.
6.3 Restricted Stock.
(a) In General. Restricted Stock may be issued by the Company as a
result of the exercise of a Restricted Share Right upon the purchase of two
additional shares of unrestricted Common Stock, all as more fully set forth in
Section 6.4. The two (2) shares of unrestricted Common Stock purchased by the
Participant as a condition precedent to the issuance of a share of Restricted
Stock pursuant to a Restricted Share Right shall be the "Underlying Shares" of
such share of Restricted Stock; provided that during the Restriction Period of a
share of Restricted Stock, the Participant may designate other unrestricted
Common Stock held by the Participant as the "Underlying Shares" of such share of
Restricted Stock, but only to the extent such unrestricted shares are not then
Underlying Shares of any other share of Restricted Stock. The Committee may, at
its discretion, require that the certificates representing Underlying Shares be
deposited with and held by the Company for the Participant until the
restrictions on the related Restricted Stock have lapsed.
(b) Terms and Conditions. Shares of Restricted Stock shall be
subject to the following terms and conditions:
(i) Subject to the provisions of the Plan and such other
terms, conditions, restrictions and limitations as the Committee may
establish by way of the Restricted Stock Agreement, the Participant
shall not be permitted to sell, assign, transfer, pledge, or otherwise
encumber shares of Restricted Stock during the Restriction Period of
the Restricted Stock.
(ii) Except to the extent otherwise provided in the
applicable Restricted Stock Agreement, upon the transfer of any
Underlying Shares (if any) of a share of Restricted Stock during an
unexpired Restriction Period applicable to such share of Restricted
Stock, such share of Restricted Stock shall be forfeited by the holder.
(iii) Except as provided in the Restricted Stock Agreement and
this Plan, the Participant shall have, with respect to the shares of
Restricted Stock, all of the rights of a shareholder of the Company
holding shares of the Common Stock, including, if applicable, the right
to vote the shares and the right to receive any cash dividends. If so
determined by the Committee in the applicable Restricted Stock
Agreement, dividends payable in Common Stock shall be paid in the form
of Restricted Stock on which such dividend was paid, held subject to
the same conditions and restrictions of the underlying Performance
Restricted Stock.
(iv) Each Restricted Stock award shall be confirmed by, and
be subject to the terms of, a Restricted Stock Agreement.
<PAGE> 32
(c) The Committee may require that the certificates evidencing such
shares of Restricted Stock be held in custody by the Company until the
restrictions thereon shall have lapsed and that, as a condition of any Award of
Restricted Stock, the Participant shall have delivered a stock power, endorsed
in blank, relating to the Common Stock covered by such Award.
6.4 Restricted Share Rights.
(a) In General. The Committee may grant to any Participant the
right ("Restricted Share Right") to acquire one share of Restricted Stock
contingent upon the direct purchase of two shares of unrestricted Common Stock
(the "Underlying Shares") by the Participant (either by stock option exercise,
including stock options granted under this Plan and the 1993 Plan, or purchase
of unrestricted shares of Common Stock for full market value).
(b) Term and Exercise. Each Restricted Share Right shall be fully
exercisable on the date of Effective Date of Award of such Restricted Share
Right and may be exercised up until the date five (5) years after the Effective
Date of the Award of such Restricted Share Right.
(c) Restricted Share Right Agreement. The award of any Restricted
Share Right shall be evidenced by a written Restricted Share Right Agreement,
executed by the Company and the holder of the Restricted Share Rights, stating
the number of shares of Restricted Stock that may be purchased pursuant to the
Restricted Share Rights, and shall provide for any other terms, restrictions and
limitations as the Committee deems appropriate.
ARTICLE 7
STOCK OPTION PROGRAM
7.1 In General. Awards may be granted to Key Employees in the form of
Stock Options pursuant to this Article 7. These Stock Options may be Incentive
Stock Options, Non-Qualified Stock Options or a combination of both as
determined by the committee in its sole discretion. All Awards under the Plan
issued to Covered Employees in the form of Stock Options shall qualify as
"performance-based compensation" under Section 162(m) of the Code.
7.2 Selection of Key Employee Participants. Within the first 90 days of
an Option Period (or, if longer, within the maximum period allowed under Section
162(m) of the Code), the Committee shall select those Key Employees who will be
Participants for such Option Period. However, designation of a Key Employee as a
Participant for an Option Period shall not in any manner entitle the Participant
to receive an Award of Stock Options for the Option Period. The entitlement of
any Participant to payment of a Stock Option Award for such Option Period shall
be decided solely in accordance with the provisions of this Article 7 and the
Plan. Moreover, designation of a Key Employee as a Participant for a particular
Option Period shall not require designation of such Key Employee as a
Participant in any subsequent Option Period, and designation of one Key Employee
as a Participant shall not require designation of any other Key Employee as a
Participant in such Option Period or in any other Option Period.
<PAGE> 33
7.3 Calculation of Option Target Award. Within the first 90 days of an
Option Period (or, if longer, within the maximum period allowed under Section
162(m) of the Code), the Committee shall calculate the Participant's Option
Target Award for the Option Period then beginning.
7.4 Procedure for Determining Awards. Within the first 90 days of an
Option Period (or, if longer, within the maximum period allowed under Section
162(m) of the Code), the Committee shall establish in writing for such Option
Period:
(a) the specific Performance Criteria that will be used to
establish the Performance Goal(s) for such Option Period and the kind(s) and
level(s) of such Performance Goal(s), and
(b) a Stock Option Matrix detailing the number and combination of
Traditional Stock Options and Performance Stock Options to be awarded to the
Participant upon the attainment of the Performance Goal(s).
7.5 Election of Payment in Restricted Share Rights. Each Participant in
the Stock Option Plan shall have the right to elect to receive up to fifty
percent (50%) of the value of such Participant's Stock Option Award in
Restricted Share Rights in lieu of Stock Options, up to a maximum of Restricted
Share Rights covering that number of Common Stock with a fair market value on
date of grant of $400,000. Such election must be made by written notice to the
Company within the first ninety (90) days of the calendar year in which such
Stock Option Award is granted, or such earlier date determined by the Committee
in its discretion. Such notice shall set forth the percentage (rounded to the
nearest ten percent (10%)) of the Participant's Stock Option Award the
Participant elects to receive in Restricted Share Rights ("Restricted Share
Right Percentage"), and such notice shall be binding on the Participant and
shall not be revocable after the date given.
7.6 Option Program Awards.
(a) Condition to Receipt of Awards. A Participant must be employed
by the Company on the last day of an Option Period to be eligible for an Award
with respect to such Option Period.
(b) Limitation. A Participant shall be eligible to receive Stock
Options for an Option Period only if the Stock Option Matrix for such Option
Period as applied against such Performance Goals for such Option Period
determines that Stock Options have been earned by that Participant.
(c) Certification. Following the completion of an Option Period,
the Committee shall meet to review and certify in writing whether, and to what
extent, the Performance Goals for the Option Period have been achieved and,
based upon application of the Performance Matrix to the Performance Goals and a
Participant's Option Target Award for such Option Period, also shall calculate
and certify in writing for each Participant what number of Traditional Options
and Performance Options have been earned for the Option Period and which of such
Stock Options are Incentive Stock Options and which are Non-Qualified Stock
Options.
<PAGE> 34
(d) Negative Discretion. In determining the size of an individual
Award to be paid for an Option Period, the Committee may, through the use of
Negative Discretion, reduce or eliminate the number of Stock Options earned
under the Stock Option Matrix for the Option Period if, in its sole discretion,
such reduction or elimination is appropriate.
(e) Timing of Award Payments. The Performance Awards granted by the
Committee for an Option Period shall be paid to Participants on or reasonably
soon after the certification set forth in Section 7.6(c).
(f) Payment in Restricted Share Rights and Options. If a
Participant has elected (pursuant to Section 7.5) to receive a portion of a
Stock Option Award in Restricted Share Rights (in lieu of Stock Options) such
Restricted Share Rights shall be granted as follows. The Award for an Option
Period (as determined by the certification process set forth in Section 7.6(c),
whether paid in Traditional Stock Options or Performance Stock Options,
Incentive Stock Options or Non-Qualified Stock Options), shall be converted into
a cash value using the Black-Scholes option pricing method, with such
calculation being done as of the Effective Date of the Stock Option Award. The
Participant shall be granted a number of Restricted Share Rights equal to the
quotient of (a) the product of (i) the Restricted Share Right Percentage
multiplied by (ii) the cash value of the Stock Option Award so determined,
divided by (b) the closing price at which Common Stock trades on the Effective
Date of the Stock Option Award, or the next preceding trading day if such date
was not a trading date, on the primary securities exchange or quotation system
on which the Common Stock is then traded (such quotient to be rounded to the
nearest whole). The remainder of the Award shall be paid in Stock Options as
determined pursuant to Section 7.6(c).
7.7 Maximum Award Stock Options Per Year Per Participant.
Notwithstanding any provision contained in the Plan to the contrary, the maximum
number of shares of Common Stock for which Stock Options may be granted under
this Article 7 to any Participant in any calendar year is 100,000.
ARTICLE 8
BONUS AWARD PROGRAM
8.1 Eligibility. Within the first 90 days of a Bonus Period (or, if
longer, within the maximum period allowed under Section 162(m) of the Code), the
Committee shall select those Key Employees who will be Participants for such
Bonus Period. However, designation of a Key Employee as a Participant for a
Bonus Period shall not in any manner entitle the Participant to receive a Bonus
Award for the Bonus Period. The entitlement of any Participant to payment of a
Bonus Award for such Bonus Period shall be decided solely in accordance with the
provisions of this Article 8. Moreover, designation of a Key Employee as a
Participant for a particular Bonus Period shall not require designation of such
Key Employee as a Participant in any subsequent Bonus Period, and designation of
one Key Employee as a Participant shall not require designation of any other Key
Employee as a Participant in such Bonus Period or in any other Bonus Period.
<PAGE> 35
All of the Bonus Awards issued under the Bonus Award Program to Covered
Employees are intended to qualify as "performance-based compensation" under
Section 162(m) of the Code.
8.2 Calculation of Base Salary. Within the first 90 days of a Bonus
Period (or, if longer, within the maximum period allowed under Section 162(m) of
the Code), the Committee shall calculate the Participant's Base Salary for the
Bonus Period then beginning. The Base Salary for any Bonus Period shall be the
Participant's base salary as of the date the Performance Goal(s) for such Bonus
Period is set by the Committee. Once the Base Salary is determined for any Bonus
Period, the Base Salary will not change for that Bonus Period.
8.3 Procedure for Determining Awards. Within the first 90 days of a
Bonus Period (or, if longer, within the maximum period allowed under Section
162(m) of the Code), the Committee shall establish in writing for such Bonus
Period:
(a) the specific Performance Criteria that will be used to
establish the Performance Goal(s) for such Bonus Period and the kind(s) and
level(s) of such Performance Goal(s); and
(b) a Bonus Matrix detailing the Bonus Award for each Participant
if such Performance Goals are attained. The amount of a Participant's Bonus
Award will be calculated from the Bonus Formula for the Bonus Period, which
Bonus Formula shall be the product of the Participant's Base Salary and the
percentage derived from the Bonus Matrix.
8.4 Form of Payment of Bonus Award. The form of Bonus Awards shall be
determined as follows:
(a) Unrestricted Shares. In the event on the Effective Date of the
Bonus Award the ownership of Common Stock by (i) the Participant, the
Participant's spouse and dependent children, either directly or indirectly
through nominees, including shares held in such Participant's account in the
Caraustar Industries, Inc. Employee Savings Plan (401(k)) and any IRA account of
the Participant and (ii) any trust over which the Participant has voting power,
to the extent such shares were contributed to the trust by the Participant, is
less than the Participant's Target Ownership Level (if applicable to such
Participant), then a portion of the Participant's Bonus Award shall be paid in
shares of Common Stock, with such number of Common Stock shares equal to the
quotient of (a) thirty-percent (30%) of the Participant's Bonus Award divided by
(b) the price at which a share of Common Stock trades on the Effective Date of
the Bonus Award, or the next preceding date if such date was not a trading date,
on the primary securities exchange system on which the Common Stock is then
traded (with such quotient being rounded by the nearest whole); provided that
such Participant's Bonus Award shall be paid in shares of Common Stock hereunder
only up to the point such Participant reaches his or her Target Ownership Level.
(b) Election of Payment in Non-Qualified Traditional Stock Options.
Each Participant in the Plan shall have the right to elect to receive up to
fifty percent (50%) of the Participant's Bonus Award (after application of
Section 8.4(a)) in fully vested Non-Qualified Traditional Stock Options in lieu
of cash. Such election must be made by written notice to the Company within the
first ninety (90) days of the Bonus Period to which such Award relates. Such
<PAGE> 36
notice shall set forth the percentage (rounded to the nearest ten percent (10%))
of the Participant's Bonus Award the Participant elects to receive in fully
vested Non-Qualified Traditional Stock Options ("Stock Option Percentage"), and
such notice shall be binding on the Participant and shall not be revocable after
the date given.
(c) Payment in Stock Options. Bonus Awards for a Bonus Period
elected by a Participant to be paid in fully vested Non-Qualified Traditional
Stock Options shall be paid as follows. The Stock Option Percentage of a
Participant's cash Bonus Award for a Bonus Period (as determined by the
certification process set forth in Section 8.5(c) and after application of
Section 8.4(a)), shall be converted into a number of fully vested Non-Qualified
Traditional Stock using the Black-Scholes option pricing method, with such
calculation being done as of the Effective Date of the Bonus Award. The
Participant shall be paid that number of fully vested Non-Qualified Traditional
Stock Options.
(d) Cash. The portion of a Participant's Bonus Award not paid in
shares of Common Stock pursuant to Section 8.4(a) or paid in Stock Options
pursuant to Section 8.4(c) shall be paid in cash.
8.5 Payment of Awards.
(a) Condition to Receipt of Awards. Except as provided in Section
8.6, a Participant must be employed by the Company on the last day of a Bonus
Period to be eligible for a Bonus Award for such Bonus Period.
(b) Limitation. A Participant shall be eligible to receive a Bonus
Award for a Bonus Period only if the Bonus Matrix for such Bonus Period
determines that all or some portion of the Bonus Award has been earned by that
Participant for the Bonus Period.
(c) Certification. Following the completion of a Bonus Period, the
Committee shall meet to review and certify in writing whether, and to what
extent, the Performance Goals for the Bonus Period have been achieved and, based
upon application of the Bonus Matrix to the Performance Goals for such Bonus
Period and application of the Bonus Formula, also shall calculate and certify in
writing for each Participant the Bonus Award earned for the Bonus Period.
(d) Negative Discretion. In determining the size of an individual
Bonus Award to be paid for a Bonus Period, the Committee may, through the use of
Negative Discretion, reduce or eliminate the amount of the Bonus Award earned
under the Bonus Matrix (after application of the Bonus Formula) for the Bonus
Period if, in its sole discretion, such reduction or elimination is appropriate.
(e) Timing of Award Payments. The Bonus Awards granted by the
Committee for a Bonus Period shall be paid to Participants reasonably soon after
the certifications set forth in Section 8.5(c).
8.6 Termination of Employment During Bonus Period. In the event the
employment of a Participant in a Bonus Period terminates because of death,
Disability or Retirement prior to the last day of a Bonus Period, the
Participant shall receive, if Awards are payable for such Bonus
<PAGE> 37
Period, a pro rata Bonus Award. The amount of the pro rata Bonus Award shall be
determined by multiplying the Bonus Award the Participant would have otherwise
been paid if he or she had been a Participant for the full Bonus Period by a
fraction, the numerator of which is the number of full months he or she was a
Participant during such Bonus Period and the denominator of which is twelve
(12). For purposes of this calculation, a partial month of participation shall:
(1) be treated as a full month of participation to the extent a Participant is a
Participant in the Bonus Period for 15 or more days of such month; and (2) not
be taken into consideration to the extent the Participant is a Participant in
the Bonus Period for less than 15 days of such month. Such pro rata Bonus Award
shall be paid in the form of cash. In the event of Disability or Retirement, the
pro rata Bonus Award shall be paid directly to the Participant and, in the event
of death, to the Participant's estate. In the event a Participant's employment
terminates for any reason other than death, Disability or Retirement, such
Participant shall have no right to any Bonus Award for the Bonus Period in which
such Participant's employment is terminated.
8.7 Maximum Award Payable. Notwithstanding any provision contained in
the Plan to the contrary, the maximum Bonus Award payable to any Participant for
any Bonus Period is the Participant's Base Salary with respect to such Bonus
Period; provided further that the maximum Bonus Award payable to any Participant
in any calendar year is $1,000,000.
ARTICLE 9
STOCK OPTION AND RESTRICTED STOCK GRANTS
The Committee shall have the right to grant Awards of Non-Qualified
Stock Options to a Key Employee as determined in the Committee's discretion,
which Awards will not be made under the Stock Option Program or Bonus Award
Program. The Committee shall also have the right to grant Awards of Restricted
Share Rights as determined in the Committee's discretion, which Awards will not
be made under the Stock Option Program, and such grants of Restricted Share
Rights may not qualify as "performance-based compensation" under Section 162(m)
of the Code. Notwithstanding any provision to the contrary, the maximum number
of shares of Common Stock for which Stock Options may be granted to any
Participant in any calendar year under this Article 9 is 10,000.
ARTICLE 10
TERMINATION OF EMPLOYMENT OF PARTICIPANT
10.1 Termination Because of Death or Disability. If a Key Employee's
employment with the Company terminates because of death or Disability, then
issued and outstanding Stock Options, Restricted Share Rights and shares of
Restricted Stock awarded to such Participant pursuant to this Plan (whether or
not then held by the Participant) shall be treated as follows:
(a) Restricted Stock. To the extent permitted under Rule 16b-3, in
the event of the termination of employment of a Participant because of death or
Disability, the unexpired
<PAGE> 38
Restriction Period(s) of outstanding Restricted Stock awarded to such
Participant shall lapse and such Restricted Stock shall become unrestricted
Common Stock.
(b) Stock Options. To the extent permitted under Rule 16b-3, on
the date of a Participant's termination of employment with the Company because
of death or Disability, all of the unexercised and outstanding Stock Options
awarded to the Participant under this Plan shall become fully vested and
exercisable, and shall remain exercisable for a period of up to one year after
the date of such Participant's termination (but in no event beyond the original
expiration date of such Stock Option), but otherwise shall be subject to all
other restrictions and limitations of such Stock Option.
(c) Restricted Share Rights. To the extent permitted under Rule
16b-3, on the date of a Participant's termination of employment with the Company
because of death or Disability, all of the unexercised and outstanding
Restricted Share Rights awarded to the Participant under this Plan shall remain
exercisable for a period of up to one year after the date of such Participant's
termination (but in no event beyond the original expiration date of such
Restricted Share Rights), provided that such Restricted Share Right shall be
exercisable for Shares of unrestricted Common Stock instead of shares of
Restricted Stock.
10.2 Termination Because of Retirement. If a Key Employee's employment
with the Company terminates because of Retirement, then issued and outstanding
Stock Options, Restricted Share Rights and shares of Restricted Stock awarded to
such Participant pursuant to this Plan (whether or not then held by the
Participant) shall be treated as follows:
(a) Restricted Stock. To the extent permitted by Rule 16b-3, in
the event of the termination of employment of a Participant because of
Retirement, the outstanding shares of Restricted Stock awarded to a Participant
shall remain outstanding and the terms of such Restricted Stock shall not be
affected by such termination of employment by Retirement; provided that in the
event of the Participant's death subsequent to such Retirement, upon the
Participant's death, the unexpired Restriction Period(s) of then outstanding
Restricted Stock awarded to such Participant shall lapse and such Restricted
Stock shall become unrestricted Common Stock.
(b) Stock Options. To the extent permitted under Rule 16b-3, on
the date of a Participant's termination of employment with the Company because
of Retirement, the unexercised and outstanding Stock Options awarded to the
Participant shall remain outstanding and the terms of such Stock Options shall
not be affected by such termination of employment by Retirement; provided that
in the event of the Participant's death subsequent to such Retirement, all of
the unexercised and outstanding Stock Options awarded to the Participant under
this Plan shall become fully vested and exercisable, and shall remain
exercisable for a period of up to one year after the date of such Participant's
death (but in no event beyond the original expiration date of such Stock
Option), but otherwise shall be subject to all other restrictions and
limitations of such Stock Option. Incentive Stock Options awarded to a
Participant and not exercised within ninety (90) days of the termination of a
Participant's employment because of Retirement will, to the extent required by
law, become Non-Qualified Stock Option.
(c) Restricted Share Rights. To the extent permitted under Rule
16b-3, on the date of a Participant's termination of employment with the Company
because of Retirement, all of
<PAGE> 39
the unexercised Restricted Share Rights awarded to the Participant under this
Plan shall remain outstanding and the terms of such Restricted Share Rights
shall not be affected by such termination of employment by Retirement; provided
that in the event of the Participant's death subsequent to such Retirement, all
of the unexercised and outstanding Restricted Share Rights awarded to the
Participant under this Plan shall remain exercisable for a period of up to one
year after the date of such Participant's death (but in no event beyond the
original expiration date of such Restricted Share Rights) and that such
Restricted Share Right shall be exercisable for shares of unrestricted Common
Stock instead of shares of Restricted Stock.
10.3 Termination for any Reason Other Than Death, Disability or
Retirement. Upon the termination of Participant's employment by reason other
than Death, Disability or Retirement, issued and outstanding Stock Options,
Shares of Restricted Stock and Stock Rights awarded to a Participant (whether or
not then held by the Participant) shall be treated as follows:
(a) Restricted Stock. Upon a Participant's termination of
employment during an unexpired Restriction Period for any reason other than
death, Disability or Retirement, all outstanding shares of Restricted Stock
awarded to such Participant still subject to such unexpired Restriction Period
shall be forfeited by the holder.
(b) Stock Options. If a Participant's employment with the Company
terminates for any reason other than death, Disability or Retirement, all of the
unexercised and outstanding Stock Options awarded to such Participant shall
remain exercisable for a period of up to 90 days after the Participant's
termination (but not beyond the original expiration date of such Stock Options)
to the same extent as they were exercisable on the date of Participant's
termination. The remaining portion of the Stock Option shall be forfeited by the
holder.
(c) Restricted Share Rights. If a Participant's employment with
the Company terminates for any reason other than death, Disability or
Retirement, all of the unexercised Restricted Share Rights awarded to the
Participant under this Plan shall terminate and shall be forfeited by such
Participant.
ARTICLE 11
DIVIDEND AND DIVIDEND EQUIVALENT
If an Award is granted in the form of a Restricted Share Right, Stock
Option, shares of Restricted Stock or Common Stock, or in the form of any other
stock-based grant, the Committee may choose, at the time of the grant of the
Award or any time thereafter up to the time of the Award's payment, to include
as part of such Award an entitlement to receive dividends or dividend
equivalents, subject to such terms, conditions, restrictions, and limitations,
if any, as the Committee may establish. Dividends and dividend equivalents shall
be paid in such form and manner (i.e., lump sum or installments) and at such
time(s) as the Committee shall determine. All dividends or dividend equivalents
that are not paid currently may, at the Committee's discretion, accrue interest
or be reinvested into additional shares of Common Stock. The total number of
<PAGE> 40
shares available for grant under Section 3.1 shall not be reduced to reflect any
dividends or dividend equivalents that are reinvested into additional shares of
Common Stock.
ARTICLE 12
DEFERRAL OF AWARDS
At the discretion of the Committee, payment of any Award, dividend, or
dividend equivalent, or any portion thereof, may be deferred by a Participant
until such time as the Committee may establish. All such deferrals shall be
accomplished by the delivery of a written, irrevocable election by the
Participant prior to the time established by the Committee for such purpose, on
a form provided by the Company. Further, all deferrals shall be made in
accordance with administrative guidelines established by the Committee to ensure
that such deferrals comply with all applicable requirements of the Code.
Deferred payments shall be paid in a lump sum or installments, as determined by
the Committee. Deferred Awards may also be credited with interest, at such rates
to be determined by the Committee and, with respect to those deferred Awards
denominated in the form of Common Stock, with dividends or dividend equivalents.
ARTICLE 13
MISCELLANEOUS
13.1 Transferability. Except as provided in Section 13.2, any Award
under the Plan will be non-transferable and, accordingly, shall not be
assignable, alienable, salable or otherwise transferable by the holder; provided
that:
(a) Awards may be transferred by a Participant by will or the laws
of descent and distribution;
(b) Awards other than Incentive Stock Options may be transferred
by a Participant pursuant to a qualified domestic relations order, to the extent
permitted by the Committee, either at the time of grant or subsequently; and
(c) Awards other than Incentive Stock Options may be transferred
to a Participant by gift or other transfer to, either (i) a trust in which the
Participant or such person's spouse, or other immediate family member, or entity
owned by such a person, has an exclusive interest, or (ii) the Participant's
spouse, or other immediate family member, in each case to the extent permitted
by the Committee, either at time of grant or subsequently.
13.2 Third Party Exercises. In the event a Participant terminates
employment with the Company to assume a position with a governmental,
charitable, educational or similar non-profit institution, the Committee may
subsequently authorize a third party, including but not limited to a "blind"
trust, to act on behalf of and for the benefit of the respective Participant
with respect to any outstanding grants held by the Participant subsequent to
such termination of employment. If permitted by the Committee, a Participant may
designate a beneficiary or beneficiaries to exercise
<PAGE> 41
the rights of the Participant and receive any distributions under the Plan upon
the death of the Participant.
13.3 Withholding Taxes. The Company shall be entitled to deduct from
any payment under the Plan, regardless of the form of such payment, the amount
of all applicable income and employment taxes required by law to be withheld
with respect to such payment or may require the Participant to pay to it such
tax prior to and as a condition of the making of such payment. In accordance
with any applicable administrative guidelines it establishes, the Committee may
allow a Participant to pay the amount of taxes required by law to be withheld
from an Award by withholding from any payment of Common Stock due as a result of
such Award, or by permitting the Participant to deliver to the Company shares of
Common Stock having a fair-market value (as determined by the Committee) equal
to the amount of such required withholding taxes.
13.4 Amendments to Awards. The Committee may at any time unilaterally
amend any unexercised, unearned, or unpaid Award, including, but not by way of
limitation, Awards earned but not yet paid, to the extent it deems appropriate;
provided, however, that any such amendment which, in the opinion of the
Committee, is adverse to the Participant shall require the Participant's
consent.
13.5 Regulatory Approvals and Listings. Notwithstanding anything
contained in this Plan to the contrary, the Company shall have no obligation to
issue or deliver certificates of Common Stock evidencing any Award resulting in
the payment of Common Stock prior to (i) the obtaining of any approval from any
governmental agent which the Company shall, in its sole discretion, determine to
be necessary or advisable, (ii) the admission of such shares to listing on the
stock exchange on which the Common Stock may be listed and (iii) the completion
of any registration or other qualification of said shares under any state or
Federal law or ruling of any governmental body that the Company shall, in its
sole discretion, determine to be necessary or advisable.
13.6 No Right to Continued Employment or Grants. Participation in the
Plan shall not give any Key Employee any right to remain in the employ of the
Company. Caraustar, or, in the case of employment with a Related Company, the
Related Company, reserves the right to terminate any Employee at any time.
Further, the adoption of this Plan shall not be deemed to give any Key Employee
or any other individual any right to be selected as a Participant or to be
granted an Award.
13.7 Amendment/Termination. The Committee may suspend or terminate the
Plan at any time with or without prior notice. In addition, the Committee may,
from time to time and with or without prior notice, amend the Plan in any
manner, but may not without shareholder approval adopt any amendment that would
require the vote of the shareholders of Caraustar pursuant to Section 16 of the
Exchange Act or Section 162(m) of the Code, but only insofar as such amendment
affects Covered Employees.
13.8 Non-Uniform Determinations. Under the Plan (including without
limitation determinations of the persons to receive Awards, the form, amount and
timing of such Awards, the terms and provisions of such Awards and the
agreements evidencing same) need not be
<PAGE> 42
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
13.9 Leave of Absence. The Committee shall be entitled to make such
rules, regulations and determinations as it deems appropriate under the Plan in
respect of any leave of absence taken by the recipient of any award. Without
limiting the generality of the foregoing, the Committee shall be entitled to
determine (i) whether or not any such leave of absence shall constitute a
termination of employment within the meaning of the Plan and (ii) the impact, if
any, of any such leave of absence on Awards under the Plan theretofore made to
any Participant who takes such leave of absence.
13.10 Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of North Carolina, except as superseded by
applicable federal law.
13.11 No Right, Title, or Interest in Company Assets. No Participant
shall have any rights as a shareholder as a result of participation in the Plan
until the date of issuance of a stock certificate. To the extent any person
acquires a right to receive payments from the Company under the Plan, such
rights shall be no greater than the rights of an unsecured creditor of the
Company and the Participant shall not have any rights in or against any specific
assets of the Company. All of the Awards granted under the Plan shall be
unfunded.
13.12 Section 16 of the Exchange Act. In order to avoid any Exchange
Act violations, the Committee may, from time to time, impose additional
restrictions upon an Award, including but not limited to, restrictions regarding
tax withholdings and restrictions regarding the Participant's ability to
exercise Awards under any broker or third-party assisted exercise program.
13.13 No Guarantee of Tax Consequences. No person connected with the
Plan in any capacity, including, but not limited to, Caraustar and its Related
Companies and their directors, officers, agents and employees makes any
representation, commitment, or guarantee that any tax treatment, including, but
not limited to, Federal, state and local income, estate and gift tax treatment,
will be applicable with respect to amounts deferred under the Plan, or paid to
or for the benefit of a Participant under the Plan, or that such tax treatment
will apply to or be available to a Participant on account of participation in
the Plan.
13.14 Compliance with Section 162(m). If any provision of the Plan
would cause the Awards, other than an Award of Restricted Share Rights pursuant
to Article 9, granted to a Covered Person not to qualify as "performance-based
compensation" under Section 162(m) of the Code, that provision, insofar as it
pertains to the Covered Person, shall be severed from, and shall be deemed not
to be a part of this Plan, but the other provisions hereof shall remain in full
force and effect.
13.15 Other Benefits. No Award granted under the Plan shall be
considered compensation for purposes of computing benefits under any retirement
plan of the Company nor affect any benefits or compensation under any other
benefit or compensation plan of the Company now or subsequently in effect,
provided however that any Bonus Award paid in cash shall be considered
compensation for purposes of the Caraustar Industries, Inc. Defined Benefit
Pension Plan.
