<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 LOGO)
March 17, 2000
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 19,
2000, at 10:00 A.M. at the Caraustar corporate headquarters, 3100 Joe Jerkins
Boulevard (formerly known as Washington Street), Austell, Georgia.
The primary business of the meeting will be the election of directors,
consideration of a proposal to amend the Company'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 19, 2000. 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>
PHONE 770.948.3101 - P.O. BOX 115 - AUSTELL, GA 30168-0115
3100 JOE JERKINS BOULEVARD - AUSTELL, GA 30106-3227
www.caraustar.com
<PAGE> 3
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, APRIL 19, 2000
The Annual Meeting of Shareholders of Caraustar Industries, Inc. ("Caraustar")
will be held on Wednesday, April 19, 2000, at 10:00 A.M., at the Caraustar
corporate headquarters, 3100 Joe Jerkins Boulevard (formerly known as
Washington Street), Austell, Georgia for the following purposes:
1. To elect three Class II directors to serve until the 2003 Annual Meeting
of Shareholders.
2. To consider and act on a proposal to amend the Company'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, 2000.
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 18, 2000, 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 17, 2000
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 LOGO)
---------------------
PROXY STATEMENT
---------------------
The following statement, first mailed on or about March 17, 2000, 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 19, 2000, at 10:00 A.M., at the Caraustar corporate headquarters, 3100
Joe Jerkins Boulevard, 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 II director nominees named in this Proxy Statement, a
proposal to amend the 1998 Key Employee Incentive Compensation 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, 2000.
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.
February 18, 2000 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 18, 2000 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 25,736,190. 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, consideration of the plan amendment proposal 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 proposals to amend the 1998 Key
Employee Incentive Compensation Plan and to ratify 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 1, 2000, the only class of voting securities the Company had
issued and outstanding was its Common Shares. On that date there were 25,735,977
Common Shares outstanding. The following table sets forth the names of, and the
numbers and percentages of Common Shares beneficially owned as of March 1, 2000
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>
Shapiro Capital Management Company, Inc.(2)................. 1,614,250 6.3%
Samuel R. Shapiro
3060 Peachtree Road, N.W.,
Atlanta, Georgia 30305
Capital Group International, Inc.(3)........................ 1,533,000 6.0%
Capital Guardian Trust Company
11100 Santa Monica Boulevard
Los Angeles, California 90025
Thomas V. Brown(4).......................................... 243,128 *
Bob M. Prillaman............................................ 166,024 *
Jimmy A. Russell............................................ 137,854 *
Russell M. Robinson, II(5).................................. 112,485 *
H. Lee Thrash, III(6)....................................... 103,401 *
Ralph M. Holt, Jr........................................... 98,000 *
Edward G. Schmitt........................................... 85,832 *
James L. Walden............................................. 82,937 *
John D. Munford............................................. 9,210 *
James E. Rogers............................................. 8,228 *
James H. Hance, Jr.(7)...................................... 8,228 *
Dennis M. Love.............................................. 2,609 *
Directors and Executive Officers as a group (14 persons).... 1,084,332 4.2%
</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 1, 2000: Mr. Brown -- 135,548; Mr. Walden -- 42,650; Mr.
Schmitt -- 24,115; Mr. Russell -- 23,130; Mr. Thrash -- 20,349; Mr.
Prillaman -- 6,750; Mr. Robinson -- 5,000; Mr. Holt -- 5,000; Mr. Rogers --
5,000; Mr. Hance -- 5,000; Mr. Munford -- 5,000; Mr. Love -- 2,000;
Directors and Executive Officers as a group -- 291,288.
(2) Based on a Schedule 13G filed with the Company on or about February 2, 2000.
Shapiro Capital Management Company, Inc. is an investment adviser that
exercises voting and investment power with respect to these securities,
which are held for the account of its clients. Samuel R. Shapiro, who is
president, director and a majority shareholder of Shapiro Capital Management
Group, Inc., has also joined in filing the Schedule 13G to the extent that
he may be deemed to "beneficially own" these securities by virtue of his
positions with Shapiro Capital Management Group, Inc. Mr. Shapiro disclaims
beneficial ownership of all reported securities.
(3) Based on a Schedule 13G filed with the Company on or about February 10,
2000. Capital Group International, 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
2
<PAGE> 6
respective clients, which include registered investment companies and
institutional accounts. Capital Group International, Inc. does not have
investment power or voting power over any of the securities reported above;
however, Capital Group International, Inc. may be deemed to "beneficially
own" such securities within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, and Capital Guardian Trust Company may be deemed to
"beneficially own" certain of these securities as the result of its service
as investment manager of various institutional accounts. Both Capital Group
International, Inc. and Capital Guardian Trust Company disclaim beneficial
ownership of all reported securities.
(4) Includes 29,200 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 1995 through
1999 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, 1994
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 1994 THROUGH 1998
<TABLE>
<CAPTION>
S&P PAPER & FOREST
CARAUSTAR S&P 400 PRODUCTS INDEX
--------- ------- ------------------
<S> <C> <C> <C>
12/31/94 100.00 100.00 100.00
12/31/95 91.92 134.63 110.07
12/31/96 155.58 165.62 121.77
12/31/97 163.37 216.94 130.53
12/31/98 139.62 289.95 132.99
12/31/99 120.87 364.99 185.87
</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 II directors will
expire at the 2000 Annual Meeting. The incumbent Class II directors are Bob M.
Prillaman, Russell M. Robinson, II and H. Lee Thrash, III.
It is intended that the persons named in the accompanying proxy appointment
form will vote only for the three nominees for Class II 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 1999 the Board of Directors held 6 meetings and on 2 occasions acted
by unanimous written consent.
The Board of Directors maintains an Audit Committee, on which 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
1999.
The Board of Directors also has a Compensation and Employee Benefits
Committee, on which Messrs. Love, Munford and Rogers (chairman) serve. The
Compensation and Employee Benefits Committee establishes and reviews the
compensation criteria and policies of the Company, and administers the Company's
1998 Key Employee Incentive Compensation Plan. The Compensation and Employee
Benefits Committee met 2 times in 1999.
Each director who is not an employee or former employee of the Company is
being paid (in quarterly installments) an annual retainer fee of $20,000 for
serving as a director. A non-executive Chairman of the Board is paid an annual
retainer fee of $55,000. 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 $3,500.
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, $1,000 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. The Company's Bylaws prescribe the procedure
a shareholder must follow to make nominations for director candidates, as
described below under "Proposals for 2001 Annual Meeting of Shareholders."
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 2002 Annual Meeting)
THOMAS V. BROWN (59), 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 packaging company, from October 1986 through December
1990.
RALPH M. HOLT, JR. (68), 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. Mr. Holt also serves as Vice
Chairman of Mid Carolina Bank in Burlington, North Carolina.
DENNIS M. LOVE (44), PRESIDENT AND CHIEF EXECUTIVE OFFICER, PRINTPACK INC.,
Atlanta, Georgia, a manufacturer and converter of flexible packaging materials.
Mr. Love was appointed a director in February 1999. Mr. Love also serves as a
director of AGL Resources Inc. and SunTrust Banks, Inc.
CLASS II DIRECTORS
(Nominees for election to serve until 2003 Annual Meeting)
BOB M. PRILLAMAN (67), SENIOR VICE PRESIDENT (RETIRED), CARAUSTAR
INDUSTRIES, INC. Mr. Prillaman 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 had been employed by the Company or its predecessors since
1969.
RUSSELL M. ROBINSON, II (68), 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. The
firm of Robinson, Bradshaw & Hinson, P.A., of which Mr. Robinson is a
shareholder, officer and director, is the Company's principal outside legal
counsel. The firm performed legal services for the Company during the last
fiscal year, and it is anticipated that the firm will continue to do so during
the current fiscal year.
H. LEE THRASH, III (49), 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.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR ALL NOMINEES.
CLASS III DIRECTORS
(Incumbents to serve until 2001 Annual Meeting)
JAMES H. HANCE, JR. (55), VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER, BANK
OF AMERICA CORPORATION, Charlotte, North Carolina, a bank holding company. Mr.
Hance has served as Vice Chairman and Chief Financial Officer of Bank of America
Corporation (formerly 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 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 (72), 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.
JAMES E. ROGERS (54), 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., Owens & Minor, Inc., Chesapeake Corporation and
Virginia Management Investment Corporation.
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, 1999, 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 1998
Key Employee Incentive Compensation Plan (the "Incentive Plan"). 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 those of companies of
comparable revenues and similar industries. As stated above, the Company
periodically
6
<PAGE> 10
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 1999 for the Company's senior officers and
recommended an increase, which the Board approved, in Mr. Brown's base salary
from $540,000 to $567,000.
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 Incentive Plan provides for stock option and
restricted share awards, the amount and mix of which are contingent upon the
attainment of measurable, pre-established Company performance goals. The types
of possible option awards are traditional options, which are priced at market
value on the date of grant, and performance options, which are priced at 120% of
market value on the date of grant. The higher the Company performs relative to
its performance goals, the higher the award mix is weighted toward traditional
versus performance options. In addition, a participant may elect in advance to
receive up to 50% of his option award entitlement in restricted share rights. A
restricted share right is the right to acquire one restricted share of common
stock upon the purchase of two shares of unrestricted common stock (whether by
option exercise, open market purchase or otherwise). The participant is required
to hold the underlying two shares of purchased stock for a period of five years
in order to retain the awarded share of restricted stock.
During 1999, the Compensation Committee selected 65 key employees to
receive stock-based awards under the Incentive Plan. The amount and mix of
stock-based awards granted was determined by the extent to which the Company
achieved 1998 targeted goals for economic profit. 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. Based on the Company's achievement
of approximately 75% of 1998 targeted economic profit, application of the option
formula yielded option awards of 35% of base salary to participants and a mix of
62.5% traditional options and 37.5% performance options. Mr. Brown participated
in the Incentive Plan on the same basis as that of all other participating
executives, with the amount and mix of stock-based awards granted to him being
substantially the same, in proportion to his base salary, as the amounts granted
to other senior executives.
ANNUAL BONUS
The Incentive Plan provides for an annual bonus contingent on Company
performance. Approximately 65 executives participated in this plan in 1999. 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. The bonus generally is payable in cash;
however, participants who own less than their specified target level of stock
ownership at the time of the bonus award are required to take up to 30% of their
bonus in the form of Common Shares, and participants may voluntarily elect to
receive up to 50% of their bonus award in fully vested nonqualified stock
options. For 1999, bonuses depended on the extent to which the Company achieved
certain target levels of economic profit and a certain threshold level of
earnings per share. In 1999, the Company achieved 51% of its economic profit
target, which would have yielded bonuses equal to 20% of base salary under the
bonus formula, but did not meet the minimum earnings per share threshold to
qualify for a bonus. Accordingly, based on these results, no bonuses were paid
under the Incentive Plan for 1999 to any participants, including Mr. Brown.
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
$1,000,000 limit, the Compensation Committee has considered the implications of
Section 162(m) in implementing the Incentive Plan and intends that the stock
option
7
<PAGE> 11
component of compensation payable under the Incentive Plan will qualify as
"performance-based" compensation that is exempt from the Section 162(m)
deduction limitations.
COMPENSATION COMMITTEE:
JAMES E. ROGERS, CHAIRMAN
JOHN D. MUNFORD
DENNIS M. LOVE
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last completed fiscal year, no member of the Compensation and
Employee Benefits Committee was an employee or officer of the Company.
Summary Compensation Table. The following table sets forth information
concerning the compensation for the years ended December 31, 1997, 1998 and 1999
for those persons who were, at December 31, 1999, the chief executive officer of
the Company and the Company's four other most highly compensated executive
officers (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION AWARDS
------------------ -------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND SALARY BONUS AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- ------------------------------------ ---- -------- ------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas V. Brown,.................... 1999 $562,500 $ 0 --(2) 18,057(3) $4,700(4)
President and Chief 1998 $535,000 $66,875(5) $10,017(6) 15,876(7) $4,760(4)
Executive Officer 1997 $499,167 $ 0 -- 8,000 $4,700(4)
Edward G. Schmitt,.................. 1999 $322,500 $ 0 --(8) 9,536(3) $3,200(9)
Vice President 1998 $282,533 $35,317(5) -- 9,476(10) $3,200(9)
1997 $213,024 $ 0 -- 4,500 $3,200(9)
James L. Walden,.................... 1999 $320,673 $ 0 -- 10,390(3) $3,200(9)
Vice President 1998 $307,840 $76,960 -- 7,997(11) $3,200(9)
1997 $296,006 $ 0 -- 4,500 $3,200(9)
Jimmy A. Russell,................... 1999 $282,287 $ 0 -- 8,712(3) $3,200(9)
Vice President 1998 $258,120 $64,530 -- 6,595(11) $3,033(9)
1997 $242,287 $ 0 -- 5,000 $3,200(9)
H. Lee Thrash, III,................. 1999 $229,224 $ 0 -- 7,368(3) $3,200(9)
Vice President 1998 $218,307 $54,577 -- 5,626(11) $3,200(9)
1997 $207,490 $ 0 -- 3,500 $3,167(9)
</TABLE>
- ---------------
(1) Certain amounts may have been expended by the Company that may have had
value as a perquisite or personal benefit to the Named Officers. However,
the total value of such benefits did not exceed the lesser of $50,000 or
10% of the annual salary and bonus of any Named Officer for the fiscal year
reported.
(2) As of December 31, 1999, Mr. Brown held a total of 11,406 restricted Common
Shares valued at $273,744.
(3) Based on the extent to which the Company achieved performance goals
established under the Incentive Plan, 62.5% of the options were awarded as
traditional options, priced at 100% of market value on date of grant, and
37.5% were awarded as performance options, priced at 120% of market value
on date of grant.
(4) Amount includes $3,200 in employer matching contributions under the
Company's 401(k) Plan, and the balance represents the portion of term life
insurance premiums paid by the Company on terms not otherwise available to
all salaried employees.
8
<PAGE> 12
(5) In accordance with the Incentive Plan, this Named Officer elected to
receive nonqualified stock options, the amounts of which are reflected in
the Securities Underlying Options column, in lieu of 50% of the cash bonus
to which he was entitled.
(6) This amount represents the value of 389 shares acquired through the
exercise of restricted share rights valued at $25.75 per share.
(7) This amount consists of the following: (1) traditional options, priced at
100% of market value on date of grant, to purchase 3,971 shares; (2)
performance options, priced at 120% of market value on date of grant, to
purchase 2,875 shares; (3) restricted share rights to acquire 2,581 shares;
and (4) options, priced at 100% of fair market value on date of grant, to
purchase 6,449 shares, which options were elected in lieu of 50% of the
Named Officer's 1998 cash bonus entitlement.
(8) As of December 31, 1999, Mr. Schmitt held a total of 3,408 restricted
Common Shares valued at $81,792.
(9) Amount represents employer matching contributions under the Company's
401(k) plan.
(10) This amount consists of the following: (1) traditional options, priced at
100% of market value on date of grant, to purchase 3,521 shares; (2)
performance options, valued at 120% of market value on date of grant, to
purchase 2,549 shares; and (3) options, priced at 100% of market value on
date of grant, to purchase 3,406 shares, which options were elected in lieu
of 50% of the Named Officer's 1998 cash bonus entitlement.
(11) Based on the extent to which the Company achieved performance goals
established under the Incentive Plan, 58% of these options were awarded as
traditional options, priced at 100% of market value on date of grant, and
42% were awarded as performance options, priced at 120% of market value on
date of grant.
Option Grants Table. The following table sets forth certain information
concerning grants of stock options to the Named Officers during the year ended
December 31, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM
OPTIONS GRANTED TO EMPLOYEES IN BASE PRICE -----------------------
NAME (#) FISCAL YEAR ($/SH) EXPIRATION DATE 5% ($) 10% ($)
---- --------------- --------------- ----------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas V. Brown........ 11,286(1) 4.7% $25.75 2009 $182,720 $463,177
6,771(2) 6.6% $30.90 2009 $ 74,779 $243,004
6,449(3) 32.3% $25.75 2009 $104,409 $264,667
Edward G. Schmitt...... 5,960(1) 2.5% $25.75 2009 $ 96,492 $244,598
3,576(2) 3.5% $30.90 2009 $ 39,493 $128,339
3,406(3) 17.1% $25.75 2009 $ 55,143 $139,782
James L. Walden........ 6,494(1) 2.7% $25.75 2009 $105,164 $266,506
3,896(2) 3.8% $30.90 2009 $ 43,028 $139,823
Jimmy A. Russell....... 5,445(1) 2.3% $25.75 2009 $ 88,177 $223,457
3,267(2) 3.2% $30.90 2009 $ 36,081 $117,249
H. Lee Thrash, III..... 4,605(1) 1.9% $25.75 2009 $ 74,574 $188,984
2,763(2) 2.7% $30.90 2009 $ 30,515 $ 99,161
</TABLE>
- ---------------
(1) These amounts represent the number of Common Shares underlying grants of
traditional options under the Incentive Plan, priced at 100% of market value
on date of grant. These options are, to the extent permitted under the
Internal Revenue Code (the "Code"), intended to be incentive stock options
within the meaning of Section 422 of the Code. All of these options are
currently 20% vested, and will continue to vest over 4 years beginning on
February 4, 2001 in annual increments of 20%.
(2) These amounts represent the number of Common Shares underlying grants of
performance options under the Incentive Plan, priced at 120% of market value
on the date of grant. These options are, to the extent permitted under the
Code, intended to be incentive stock options within the meaning of Section
422 of
9
<PAGE> 13
the Code. All of these options are currently 20% vested, and will continue
to vest over 4 years beginning on February 4, 2001 in annual increments of
20%.
(3) These amounts represent the number of Common Shares underlying grants of
fully vested non-qualified stock options elected in lieu of 50% of the Named
Officer's 1998 cash bonus entitlement.
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 1999 and unexercised options held as of December 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE AT FY-END (#) FY-END ($)(1)
ON EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas V. Brown...... 14,000 $252,375 126,568 29,534 $1,896,000 $9,000
2,581 $ 56,734
Edward G. Schmitt.... 0 0 18,994 17,518 $ 79,188 $3,938
James L. Walden...... 0 0 36,723 20,164 $ 213,063 $5,063
Jimmy A. Russell..... 0 0 17,819 17,488 $ 91,750 $4,500
H. Lee Thrash, III... 0 0 15,999 14,495 $ 87,937 $3,938
</TABLE>
- ---------------
(1) The fair market value used for computations in this column was $24.00, which
was the closing market price of the Company's Common Shares on December 31,
1999.
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 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.
10
<PAGE> 14
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 $17,969 $ 26,953 $ 35,937 $ 44,921 $ 53,906 $ 62,890 $ 71,874 $ 80,858
200,000 24,719 37,078 49,437 61,796 74,156 86,515 98,874 111,233
250,000 31,469 47,203 62,937 78,671 94,406 110,140 125,874 141,608
300,000 38,219 57,328 76,437 95,546 114,656 133,765 152,874 171,983
350,000 44,969 67,453 89,937 112,421 134,906 157,390 179,874 202,358
400,000 51,719 77,578 103,437 129,296 155,156 181,015 206,874 232,733
450,000 58,469 87,703 116,937 146,171 175,406 204,640 233,874 263,108
500,000 65,219 97,828 130,437 163,046 195,656 228,265 260,874 293,483
550,000 71,969 107,953 143,937 179,921 215,906 251,890 287,874 323,858
600,000 78,719 118,078 157,437 196,796 236,156 275,515 314,874 354,233
650,000 85,469 128,203 170,937 213,671 256,406 299,140 341,874 384,608
</TABLE>
At December 31, 1999, 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, 37 years and $606,567 (credited years of
service include term of service with former employer in accordance with Mr.
Brown's employment agreement); Edward G. Schmitt, 25 years and $275,722
(credited years of service include term of service with former employer); James
L. Walden, 7 years and $377,659; Jimmy A. Russell, 24 years and $306,832; and H.
Lee Thrash, III, 16 years and $259,006.
Employment Agreements. The Company entered into an employment agreement,
effective January 1, 1991, with Thomas V. Brown. The employment agreement
established Mr. Brown's initial annual base salary at $350,000, and provides
that subsequent increases in his base salary are to be 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. These
options are 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.
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 in
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
11
<PAGE> 15
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.
AMENDMENT OF THE 1998 KEY EMPLOYEE INCENTIVE COMPENSATION PLAN
The Board of Directors has approved an amendment to the Company's 1998 Key
Employee Incentive Compensation Plan (the "Incentive Plan"), subject to
shareholder approval, to increase the number of shares reserved for issuance
under the Incentive Plan by an additional 2,200,000 shares. A significant
expansion of the pool of Option Program and Bonus Program participants, from 60
participants in 1998 to 110 in 2000, has contributed to the depletion of
available shares under the Incentive Plan at a rate faster than the Company
originally anticipated. Further, a provision of the Incentive Plan that, as
described below, generally reserves an additional 6.3% of the net annual
increase in the number of Common Shares, has afforded no net additional capacity
to date, as the Company has implemented a stock repurchase program over the last
2 years. As of December 31, 1999, approximately 602,730 of the originally
reserved 1,600,000 Common Shares were either issued or are subject to options
issued under the Incentive Plan, and the Company estimates that approximately
700,000 additional shares will be subject to options as the result of grants
under the Plan this year. Thus, after this year's grants, approximately only
300,000 shares would be available over the remaining three annual grant periods
under the Plan. The amendment will not be implemented unless the shareholders
approve it.
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,
as proposed to be amended, is attached to this proxy statement as Appendix A.
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 Incentive Plan currently provides that
a total of 1,600,000 Common Shares are authorized for issuance upon exercise of
options and restricted share rights awarded under the 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.
Under the proposed amendment, the aggregate number of Common Shares authorized
for issuance under the Incentive Plan would be increased by 2,200,000 (to a
total of 3,800,000 Common Shares). Of the additional pool of 2,200,000 reserved
shares, a maximum of 200,000 would be eligible for grants as either restricted
stock (issuable upon the exercise of restricted share rights) or unrestricted
Common Stock (issuable in lieu of cash bonus pursuant to the Bonus Program). In
addition, the Incentive Plan provides that on the date of each annual
shareholder meeting during the term of the Incentive Plan (other than the 1998
Annual Meeting), the number of Common Shares available for issuance under the
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 Incentive Plan). In addition, the maximum
number of shares available for issuance under the 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 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
12
<PAGE> 16
number of shares covered by incentive stock options and nonqualified stock
options that may be granted under the Incentive Plan will be 3,800,000 under the
terms of the proposed amendment
Term. No awards shall be granted under the Incentive Plan after April 15,
2003.
Administration and Participants. The Incentive Plan is administered by a
committee of two or more directors, which committee currently is the
Compensation and Employee Benefits Committee of the Board (the "Committee"). The
Committee has full discretionary authority in interpreting the Incentive Plan.
The Committee will select participants in the Incentive Plan from among the key
employees of the Company. 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 110 key management employees and 170 other key employees eligible
to participate in the Incentive Plan.
General Focus. The Committee may grant awards under the 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 Incentive Plan is
to make awards that are contingent upon the attainment of certain measurable
Company performance goals. The 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 has historically used, and intends
to continue using, 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 traditional options,
performance stock options, or a combination of both, as determined by the option
performance matrix. Traditional 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 traditional 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 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,
which historically has been five (5) years.
13
<PAGE> 17
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 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. The performance
criteria for the bonus period historically have been, and are expected to
continue to be, 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 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 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 2000, to the
extent that such awards would exceed presently available capacity under the
Incentive Plan, will be conditioned upon shareholder approval of the amendment
to the 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 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
14
<PAGE> 18
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 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 Incentive Plan without notice. The Committee may amend the 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 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 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
Incentive Plan under current federal law are summarized in the following
discussion, which deals with the general tax principles applicable to the
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 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
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<PAGE> 19
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 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 Incentive Plan, so that the
deductibility of compensation paid to top executives thereunder is not expected
to be disallowed. Shareholder approval of the amendment to the Incentive Plan is
required for certain awards under the Incentive Plan, as proposed to be amended,
to qualify as "performance-based" under Section 162(m).
The table below sets forth certain information concerning grants under the
Incentive Plan during the fiscal year ended December 31, 1999 to (i) each
officer of the Company named in the Summary Compensation Table, (ii) all current
executive officers of the Company as a group, (iii) all non-employee directors
as a group and (iv) all employees other than the current executive officers as a
group.
PLAN BENEFITS
UNDER 1998 KEY EMPLOYEE INCENTIVE COMPENSATION PLAN
<TABLE>
<CAPTION>
NUMBER OF UNITS
NAME AND POSITION DOLLAR VALUE(1) (#)(2)
- ----------------- --------------- ---------------------
<S> <C> <C>
Thomas V. Brown............................................ $0 24,506(3)
President and Chief Executive Officer
Edward G. Schmitt.......................................... $0 12,942(4)
Vice President
James L. Walden............................................ $0 10,390
Vice President
Jimmy A. Russell........................................... $0 8,712
Vice President
H. Lee Thrash, III......................................... $0 7,368
Vice President
All current executive officers as a group (7 persons)...... $0 78,011
All non-employee directors as a group (6 persons).......... $0 0
All employees other than current executive officers as a
group (237 persons)...................................... $0 285,717(5)
</TABLE>
- ---------------
(1) Based on the difference between the grant prices of the options reflected in
the table and $15.00, the closing price of the Company's Common Stock on
March 6, 2000, the dollar value of each of these grants is currently $0.
(2) Except for the amounts noted in footnotes (3), (4) and (5), all amounts
shown are awards of options to purchase Common Stock that expire in
February, 2009, are currently 20% vested, and will continue to vest over 4
years beginning on February 4, 2001 in annual increments of 20%. Of these
amounts shown
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<PAGE> 20
(other than as described in notes (3), (4) and (5)), 62.5% were granted as
traditional options at an exercise price equal to the then-fair market value
of the Common Shares ($25.75), and 37.5% were granted as performance options
at an exercise price equal to 120% of the then-fair market value of the
Common Shares ($30.90).
(3) Of these options, 6,449 are fully vested, non-qualified options that expire
in February 2009 and were elected by the recipient in lieu of 50% of the
Named Officer's 1998 cash bonus entitlements.
(4) Of these options, 3,406 are fully vested, non-qualified options that expire
in February 2009 and were elected by the recipient in lieu of 50% of the
Named Officer's 1998 cash bonus entitlements.
(5) Of these options, all of which expire ten years from the date of grant, (i)
194,131 were granted on February 4, 1999 as traditional options at $25.75,
the fair market value at grant, are currently 20% vested, and will continue
to vest over 4 years beginning on February 4, 2001 in annual increments of
20%, (ii) 77,586 were granted on February 4, 1999 as performance options at
$30.90, or 120% of fair market value at grant, are currently 20% vested, and
will continue to vest over 4 years beginning on February 4, 2001 in annual
increments of 20%, (iii) 12,500 were granted on June 1, 1999 as traditional
options at $26.44, the fair market value at grant, are completely unvested
and will vest over 5 years beginning June 1, 2000 in annual increments of
20% and (iv) 1,500 were granted on June 15, 1999 as traditional options at
$24.63, the fair market value at grant, are completely unvested and will
vest over 5 years beginning June 15, 2000 in annual increments of 20%.
Approval of the proposal requires the affirmative vote of a majority of the
Common Shares voted on the proposal.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE 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 2001 ANNUAL MEETING OF SHAREHOLDERS
Shareholders who intend to present proposals 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 17, 2000 in order to be
considered for inclusion in the Company's proxy statement and proxy appointment
form relating to that meeting. Only persons who have held beneficially or of
record at least $2,000 in market value, or 1% of the outstanding Common Shares,
for at least one year on the date the proposal is submitted and who continue in
such capacity through the meeting date are eligible to submit
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<PAGE> 21
proposals to be considered for inclusion in the Company's proxy statement. In
addition, the Company's bylaws prescribe procedures a shareholder must follow to
make nominations for director candidates or propose any other business to be
considered at an annual meeting. 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. Other shareholder proposals will be
considered at an annual meeting if the shareholder delivers to the Secretary of
the Company at its principal executive office, no less than 60 nor more than 90
days prior to the meeting, a written notice setting forth the information
specified in Section 15 of Article III of the Company's bylaws. Notwithstanding
the limitations described in the preceding sentence, in the event the Company's
annual meeting is held on a date other than the third Wednesday in April, and
public disclosure of the date of the annual meeting is made less than 70 days
prior to the meeting date, a shareholder's notice of proposed business will be
considered timely if received by the Company no later than the tenth day
following the date of public disclosure of the meeting date. Any shareholder
desiring a copy of the Company's bylaws will be furnished one without charge
upon written request to the Secretary at 3100 Joe Jerkins Boulevard, Austell,
Georgia, 30106.
OTHER MATTERS
The Board is 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 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
18
<PAGE> 22
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.
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.
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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 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.
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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.
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
3,800,000, 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 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.
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(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 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.
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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
(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
(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
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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 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.
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(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.
(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.
(d) Of the 2,200,000 additional shares of Common Stock authorized at the
2000 annual meeting of shareholders for issuance under the Plan, a maximum of
200,000 of such shares may be issued as Restricted Stock.
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
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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.
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) 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.
(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
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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. 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 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
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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 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 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 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
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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 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.
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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 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.
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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
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 the rights of the
Participant and receive any distributions under the Plan upon the death of the
Participant.
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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 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.
A-14
<PAGE> 36
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.
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<PAGE> 37
(CARAUSTAR LOGO)
<PAGE> 38
REVOCABLE
APPOINTMENT
OF PROXY
CARAUSTAR INDUSTRIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 19, 2000
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 18, 2000, at the annual meeting of shareholders to be
held at the Caraustar corporate headquarters, 3100 Joe Jerkins Boulevard,
Austell, Georgia on April 19, 2000 or any adjournment thereof.
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.
(Continued and to be dated and signed on the reverse side.)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS.
1. ELECTION OF THREE CLASS II DIRECTORS
<TABLE>
<S> <C> <C> <C> <C> <C>
FOR all nominees listed below [ ] WITHHOLD AUTHORITY *EXCEPTIONS [ ]
to vote for all nominees listed below [ ]
</TABLE>
NOMINEES: Bob M. Prillaman; Russell M. Robinson, II; H. Lee Thrash, III
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, MARK THE "EXCEPTIONS" BOX AND WRITE THAT
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
* Exceptions ______________________________________________________________
2. PROPOSAL TO AMEND THE COMPANY'S 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 [ ]
4. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
Change of Address and or Comments Mark Here [ ]
The undersigned acknowledges receipt of the Notice of Annual Meeting
and Proxy Statement dated March 17, 2000, 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:_____________________________, 2000
_________________________________________
Signature
_________________________________________
Signature if held jointly
VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK [X]
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
