Exhibit No. 10.02

 

August 20, 2004

 

Mr. Steve Kelchen

10 Lakeside Drive

Washington, Missouri 63090

 

  Re: Terms of Employment with Caraustar Industries, Inc.

 

Dear Steve:

 

On behalf of Caraustar Industries, Inc. (the “Company”), I am pleased to offer
you employment with the Company on the following terms and conditions.

 

1. Title and Reporting: Vice President, Custom Packaging Group, reporting to the
Senior Vice President and Chief Operating Officer.

 

2. Duties: Duties will include, but are not limited to, planning, direction and
coordination of the operational and sales and marketing aspects of the business
units of the Custom Packaging Group, and such other duties consistent with your
position as assigned to you from time to time.

 

3. Compensation

 

(a) Base Salary: $300,000 per year (provided in accordance with the Company’s
standard payroll practices for all salaried employees), which may be increased
by the Board of Directors at its sole discretion.

 

(b) Bonus: You will be eligible for an annual bonus at the Company’s discretion
under the terms of the Company’s Senior Management Incentive Compensation Plan
as currently in effect; provided, however, that you are guaranteed to receive a
bonus for plan year 2004 of not less than $20,000 and for plan year 2005 of not
less than 25% of your base salary earned during that plan year.

 

4. Benefits

 

(a) Basic Benefit Plans: You will be eligible to participate in the Company’s
regular health, life, disability, retirement and other benefit plans offered to
all salaried employees in accordance with the terms of those plans.

 

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Mr. Steve Kelchen

August 20, 2004

Page 2

 

(b) You will be eligible for a long-term disability plan supplemental to the
Company’s basic long-term disability plan to ensure the replacement of at least
75% of your base salary in the event of a qualifying disability;

 

(c) Four weeks of earned vacation annually;

 

(d) You will be granted fifteen years of industry service credit for purposes of
the Short-Term Disability income replacement plan;

 

(e) You will become an immediate participation upon hire in the Supplemental
Employee Retirement Plan with fifteen years of industry service credit for
purposes of the benefit calculation (with the total benefit payable under the
plan to be offset by any vested benefit payments from qualified pension plans of
Smurfit-Stone);

 

(f) You will be provided full relocation services as necessary for your needs
under the Company’s Relocation Program;

 

(g) You will be allowed to have a Country Club membership at your election with
an allowance of up to $300 per month for monthly dues and one-time reimbursement
of up to $10,000 in initiation related fees;

 

(h) You may also participate, if you elect, in any of the Company’s other
voluntary benefit plans for similarly situated employees.

 

5. Long Term Equity Grants:

 

(a) You will receive a one-time non-qualified option grant under the terms of
the Caraustar Long Term Equity Plan to purchase 15,000 restricted shares of the
Company’s stock valued as of date of hire, with the grant to vest over four
years and have a ten (10) year term.

 

(b) You will receive a one-time Performance Accelerated Restricted Stock (PARS)
grant under the terms of the Caraustar Long Term Equity Plan of 10,000 fully
valued shares with a target vesting price of $20.00 per share subject to a
one-year blackout period.

 

(c) You will be given a one-time grant of 7,500 fully valued shares as of the
date of hire. These shares will vest after one year of employment.

 

(d) All future equity grants will be determined in accordance with the terms of
the Caraustar Long Term Equity Plan.

 

6. Business Expenses: You will be reimbursed for reasonable and necessary
business expenses, in accordance with the Company’s policies and upon
presentation of appropriate documentation.

 

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Mr. Steve Kelchen

August 20, 2004

Page 3

 

7. Severance Benefits:

 

(a) In the event your employment is terminated other than because of your death
or “disability” (as defined below), by you for any reason, for “cause” (as
defined below) or in connection with a qualifying termination under the terms of
a change in control severance agreement to be entered between you and the
Company, you will be entitled to a severance benefit equal to at least six (6)
months’ continuation of your then- current base salary and benefits coverage in
place at the time of termination.

 

(b) In the event your employment is terminated because of your death or
disability, for cause, or by you for any reason, you will not be entitled to
receive any compensation or benefits after the date of termination, except for
any benefits accrued through the date of termination under the Company’s plans.

 

(c) In the event of a qualifying termination under the terms of the Change in
Control severance agreement to be entered between you and the Company, you will
be entitled to receive the benefit provided thereunder. The Company will enter
such change in control severance agreement with you under terms approved by the
Company’s Board of Directors and provided to its other executive officers;
provided, that such agreement will at a minimum provide benefits upon a
qualifying termination up to the lesser of (i) twenty-four (24) months salary
continuation benefit or (ii) such lesser amount as is necessary to ensure that
no payments to you thereunder will cause any deductions to be disallowed to the
Company or cause you to be assessed any excise taxes under the Internal Revenue
Code.

 

(d) For purposes of this offer, “disability” means termination owing to your
inability to perform your duties hereunder by reason of disability or
incapacity, due to physical or mental illness, for a period in excess of six (6)
consecutive months, and “cause” means (i) your commission of a felony; or (ii)
fraud, misappropriation or embezzlement involving Company property or other
intentional wrongful acts that materially impair the goodwill or business of the
Company or that cause material damage to the Company’s property, goodwill or
business.

 

8. Restrictive Covenants: You agree, as a condition to your employment, to
execute any form of confidentiality, non-competition and non-solicitation
agreement reasonably requested by the Company and agree that the term of such
non-competition and non-solicitation agreement shall be no less than 12 months
following your termination of employment or any such longer period during which
you are receiving severance benefits from the Company or any successor.

 

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Mr. Steve Kelchen

August 20, 2004

Page 4

 

Steve, we are excited at the prospect of your joining the Company and hope that
you accept our offer. If I can answer any questions or be of further assistance
in your decision process, please do not hesitate to contact Barry Smedstad or
me.

 

Sincerely,

CARAUSTAR INDUSTRIES, INC.

By:

 

/s/ Michael J. Keough

   

Michael J. Keough

   

Senior Vice President and Chief Operating

   

Officer

 

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Mr. Steve Kelchen

August 20, 2004

Page 5

 

ACKNOWLEDGED AND AGREED:

/s/ Steve Kelchen

Steve Kelchen

Date:

 

8/31/04