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                                                                    Exhibit 10.2
                                 THE PERFORMANCE
                         INCENTIVE COMPENSATION PROGRAM
                          (AMENDED AND RESTATED - 2000)

         The following is the text of the Performance Incentive Compensation
Program (the "Program"):

         SECTION 1. PURPOSE. The purpose of this Program is to provide The
Liberty Corporation (the "Company") and its subsidiaries with an effective means
of attracting, retaining and motivating officers, other key employees and
directors (whether or not they are employees) and to encourage and enable them
to acquire common stock of the Company ("Common Stock"), thereby increasing
their proprietary interest in the Company's success. Subject to the limitations
set forth below, the Program provides for the granting of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), nonstatutory stock options, performance units,
restricted share awards, unrestricted share awards, phantom stock units, and all
or any combination of the foregoing ("Awards"), to eligible employees.

         SECTION 2. ADMINISTRATION. The Compensation Committee of the Board of
Directors or such other committee of the Board as the Board may subsequently
designate (hereinafter referred to as the "Committee") shall have full power and
authority, subject to such orders or resolutions not inconsistent with the
provisions of the Program as may from time to time be issued or adopted by the
Board, to interpret the provisions and supervise the administration of the
Program. All determinations by the Committee shall be made by the affirmative
vote of a majority of its members, but any determination reduced to writing and
signed by all of the members shall be fully as effective as if it has been made
by a majority vote at a meeting duly called and held. All decisions made by the
Committee pursuant to the provisions of the Program or resolutions of the Board
shall be conclusive and binding on all persons, including the Company, its
shareholders and employees, and participants in the Program.

         SECTION 3. SHARES SUBJECT TO THE PROGRAM.

                  (A) Shares of Common Stock are the only shares that may be
         delivered under the Program. The shares of Common Stock to be delivered
         under the Program shall be made available from the authorized but
         unissued shares or from shares reacquired by the Company, including
         shares purchased in the open market.

                  (B) Subject, in each case, to adjustments made pursuant to the
         provisions of Sections 3(C) and 3(D):

                           (i) The aggregate number of shares that may be
                  subject to Awards under the Program from its initial inception
                  in 1983 shall not exceed 5,000,000 shares.

                           (ii) Effective May 6, 1997, with respect to stock
                  options granted on or after that date (and any stock options
                  granted prior to such date if their grant was conditioned upon
                  approval of amendments to the Program by the shareholders at
                  their annual meeting on May 6, 1997), the number of shares of
                  Common Stock with respect to which such stock options may be
                  granted to any one participant within any calendar year shall
                  not exceed 400,000 shares.

                           (iii) Effective May 6, 1997, with respect to Awards
                  granted on or after that date (and any Awards granted prior to
                  such date if their grant was conditioned upon approval of
                  amendments to the Program by the shareholders at their annual
                  meeting on May 6, 1997), the number of shares of Common Stock
                  with respect to which any such Awards that are measured based
                  on a number of actual or phantom shares (except for stock
                  options governed by paragraph (ii) above) may be granted to
                  any one participant within any calendar year shall not exceed
                  100,000 shares.

                           (iv) Effective May 6, 1997, with respect to Awards
                  granted on or after that date (and any Awards granted prior to
                  such date if their grant was conditioned upon approval of
                  amendments to the Program by the shareholders at their annual
                  meeting on May 6, 1997), the maximum amount of compensation
                  that can be paid to any one participant during any calendar
                  year on account of any such Awards that are not measured based
                  on a number of actual or phantom shares of Common Stock shall
                  not exceed $2,000,000.

                           (v) Effective May 6, 1997, with respect to Awards
                  granted on and after that date (and any Awards granted prior
                  to such date if their grant was conditioned upon approval of
                  amendments to the Program by the shareholders at their annual
                  meeting on May 6, 1997), under all such Awards (other than
                  stock options) granted under the Program, in any one calendar
                  year: (x) no one participant may be paid cash in excess of
                  $5,000,000 and (y) no one participant may receive more than
                  1,000,000 shares of Common Stock. For purposes of this
                  paragraph, the amount paid or received in any calendar year
                  under an Award described in this paragraph shall be deemed to
                  be the value or number of shares earned under such Award based
                  on the attainment of performance objectives, if any, and based
                  on any downward adjustments, as determined by the Committee,
                  as of the date of the determination. Except in the case of any

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                  prior Awards granted subject to approval by the shareholders
                  of amendments to the Program at their May 6, 1997 annual
                  meeting, amounts paid pursuant to Awards granted under the
                  Program prior to May 6, 1997, shall not be counted toward and
                  shall not be subject to the limits contained in this paragraph
                  (v).

                  (C) The following rules shall apply in determining the amount
         of shares or cash that has been used for purposes of the limits in
         Section 3(B)(i), (ii), (iii), (iv) and (v):

                           (i) Any shares affected by the expiration or
                  termination (without exercise) of any option (or portion
                  thereof) prior to May 6, 1997 or by the forfeiture of all or
                  any portion of an Award of restricted shares or phantom stock
                  units prior to May 6, 1997, shall be restored to the total
                  shares available for use under the Program for Awards to the
                  same participant or other participants.

                           (ii) Effective May 6, 1997, if: (a) any shares of
                  Common Stock subject to an Award are forfeited or cancelled;
                  or (b) if any Award otherwise relating to shares of Common
                  Stock terminates by expiration, forfeiture, cancellation or
                  otherwise without the issuance of such shares or is settled in
                  cash in lieu of Common Stock; or (c) if any shares of Common
                  Stock subject to an Award, or any Awards otherwise relating to
                  shares of Common Stock, are, with the Committee's permission,
                  exchanged for or otherwise surrendered and cancelled in
                  connection with the grant of other Awards, the shares of
                  Common Stock so affected (directly or as a measurement of the
                  Award, to the extent so affected) shall be restored to the
                  total shares available for use under the Program for Awards
                  generally, but shall be counted against the limitations
                  contained in Section 3(B)(ii), (iii) and (v) with respect to
                  the participant involved. Although shares subject to or
                  relating to an Award exchanged for or otherwise surrendered
                  and cancelled in connection with the grant of a new Award
                  shall be restored to the total shares available for use under
                  the Program, the shares subject to or relating to the
                  resulting new Award shall be counted for all purposes under
                  the Program. The maximum number of shares available for
                  issuance under the Program shall not be reduced to reflect any
                  distributions that may be reinvested in additional shares of
                  Common Stock.

                  (D) In the event of a merger, reorganization, consolidation,
         recapitalization, stock dividend, spin-off, stock split or any other
         change in corporate structure or other distribution of stock or
         property (except for ordinary cash dividends) affecting the Company's
         Common Stock, such adjustments shall be made in the aggregate number of
         shares subject to the Program, the maximum number of shares which may
         be acquired by, or subject to an Award granted or paid to, any
         participant under the Program, the number and option price of shares
         subject to then outstanding options granted under the Program, the
         number of restricted shares then subject to restrictions under the
         Program and the number of shares used to determine the value of then
         outstanding phantom stock units as may be determined to be appropriate
         by the Committee. In no event shall any "Qualifying Award" (as
         described in Section 10) that is then held by a "Covered Employee" as
         defined in Section 162(m) of the Code be adjusted pursuant to Section
         3(D) to the extent it would cause such Award to fail to qualify as
         "Performance-Based Compensation" under Section 162(m) of the Code.

         SECTION 4. ELIGIBILITY FOR PARTICIPATION. The individuals eligible to
participate in the Program shall consist of officers, other key employees and
directors of the Company and its subsidiaries, whether or not such directors are
also employees of the Company or its subsidiaries, as determined by the
Committee. Subject to the limitations of the Program, the Committee shall, after
consultation with and consideration of the recommendations of management, select
the officers, employees and directors to so participate and determine whether an
officer, employee or director is to receive Awards hereunder; provided, however,
that no incentive stock option may be granted to any director who is not an
employee of the Company (or any of its subsidiaries). The Committee, in its
discretion, may impose any conditions that it deems desirable on the grant of
any new Award, including without limitation a condition requiring the applicable
participant to surrender for cancellation an outstanding Award in order to
obtain a new Award that the Committee desires to grant in substitution of any
such outstanding Award.

         SECTION 5. STOCK OPTIONS.

                  (A) Stock options shall be granted to participants by the
         Committee from time to time at its discretion. Each option shall be
         evidenced by an option agreement which shall contain such terms and
         conditions as may be approved by the Committee and shall be signed by
         an officer of the Company and the participant. Incentive stock options
         and nonstatutory stock options shall be evidenced by separate and
         distinct option agreements.

                  (B) A participant shall not be granted any incentive stock
         option if the receipt of that option would result in the participant
         owning incentive stock options (under the Program and any other plan
         maintained by the Company or any subsidiary) that become exercisable
         for the first time in any one calendar year into stock of the Company
         or any of its subsidiaries with a fair market value in excess of
         $100,000. For purposes of the preceding sentence, the fair market value
         of the stock of the Company or any of its subsidiaries will be
         determined by the Committee as of the grant of the incentive stock
         options without regard to any restriction other than a restriction
         which by its terms will never lapse.

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                  (C) The price at which shares may be purchased upon exercise
         of a particular option shall be not less than 100% of the fair market
         value of such shares on the date such option is granted, as determined
         by the Committee without regard to any restriction other than a
         restriction which by its terms will never lapse. In the case of an
         individual who, at the time an option is granted, owns stock possessing
         more than 10% of the total combined voting power of all classes of
         stock of the Company (or any of its subsidiaries) (a "10%
         Shareholder"), the exercise price of any incentive stock option shall
         be not less than 110% of the fair market value of the shares subject to
         the option on the date such option is granted, as determined by the
         Committee without regard to any restriction other than a restriction
         which by its terms will never lapse.

                  (D) Options may be granted for any period of time as
         established by the Committee, except that:

                           (i) The term of any incentive stock option shall not
                  be longer than ten years (or five years if granted to a 10%
                  Shareholder) from the date the option is granted.

                           (ii) No option granted prior to 1997 may be exercised
                  before the expiration of a one year period of continued
                  employment by the optionee with the Company or a subsidiary
                  thereof commencing on the date the option is granted, except
                  as provided in Section 5(E)(iv) below or except as provided in
                  any amendment to the applicable option agreement approved and
                  authorized through specific action by the Committee in a
                  manner consistent with terms permitted hereunder for options
                  granted after 1996.

                  (E) Subject to the limitations in this Section 5 and the terms
         and conditions of the option agreement, each option shall be
         exercisable at such time or times and in such amount or amounts as the
         Committee may prescribe and specify in the applicable option agreement.

                           (i) No incentive stock option granted after 1996
                  under this Program may be exercised more than three months (or
                  one year in the case of a disabled employee or a deceased
                  employee who died within three months of terminating
                  employment or during a disability that terminated employment)
                  after the participant holding such option ceased being an
                  employee of the Company or a subsidiary thereof, unless: (x) a
                  longer period applies under Section 5(E)(iv) below for the
                  beneficiary or legal representative of a deceased employee
                  whose death terminated employment, or (y) the Company and such
                  participant (or a deceased participant's beneficiary or legal
                  representative) mutually agree in writing that such option
                  will be amended to treat it as a nonstatutory stock option.

                           (ii) Unless the option agreement specifies a longer
                  or shorter time for exercise, a nonstatutory stock option
                  granted after 1996 must be exercised no later than one year
                  after the participant holding such option ceases to be an
                  employee (or ceases to be a non-employee director) of the
                  Company or a subsidiary thereof, unless a longer period
                  applies under Section 5(E)(iv) below.

                           (iii) In the case of options granted prior to 1997
                  (both incentive stock options and nonstatutory stock options),
                  unless the option agreement is amended by specific action by
                  the Committee (with the consent of the holder if required) in
                  a manner consistent with terms permitted hereunder for options
                  granted after 1996, each such option may be exercised only
                  during the continuance of the optionee's employment with the
                  Company or one of its subsidiaries, except as provided in
                  Section 5(E)(iv) below.

                           (iv) Except as otherwise provided in Section 5(E)(i)
                  with respect to the disability or retirement of the holder of
                  incentive stock options granted after 1996, in the event of
                  termination of employment (or service as a non-employee
                  director) by an optionee by reason of death, disability or
                  retirement at normal retirement age under the Company's
                  Retirement Plan or any applicable Retirement Plan of any of
                  the Company's subsidiaries (or any applicable retirement
                  policy for non-employee directors), any options then
                  exercisable by such optionee shall remain exercisable by the
                  optionee or, if applicable, a beneficiary or legal
                  representative, for three years from the date of such
                  termination of employment (or service as a non-employee
                  director) or until the expiration of the option, whichever
                  occurs first.

                   (F) No shares shall be delivered pursuant to the exercise of
         any option, in whole or in part, until qualified for delivery under
         such laws and regulations as may be deemed by the Committee to be
         applicable thereto and until payment in full of the option price
         therefor is received by the Company. Payment of the purchase price
         shall be made in cash, cash equivalent or, at the discretion of the
         Committee, in Common Stock of the Company valued at its fair market
         value on the date of exercise or, at the discretion of the Committee,
         in a combination of the foregoing.

                  (G) An option granted under the Program may not be transferred
         except by will or the laws of descent and distribution and, during the
         lifetime of the participant to whom granted, may be exercised only by
         such participant or his or her personal representative.

         SECTION 6. PERFORMANCE UNITS.

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                  (A) Performance units may be awarded by the Committee to
         participants from time to time at its discretion. Such units shall have
         defined terms and conditions as to their value and the basis on which
         such values will be determined.

                  (B) Performance units may be awarded in lieu of, or in
         combination with, any other Awards, as the Committee may determine.
         Performance standards shall be established by the Committee each time
         performance units are granted and, except as provided in Section 6(D)
         below, these standards must be met during the continuance of the
         participant's employment with (or service as a non-employee director
         of) the Company or one of its subsidiaries and prior to the making of
         any payment with respect to such units.

                  (C) Performance units shall be assigned a value by the
         Committee upon the award of such units.

                  (D) The value of performance units as established pursuant to
         Section 6(C) above shall be paid in cash promptly after the performance
         standards established pursuant to Section 6(B) above shall have been
         met and, for Qualifying Awards, the Committee certification required
         under Section 10 shall have occurred. In the event of termination of
         employment (or service as a non-employee director) by reason of death,
         disability or retirement at normal retirement age under the Company's
         Retirement Plan or any applicable Retirement Plan of any of the
         Company's subsidiaries (or any applicable retirement policy for
         non-employee directors), the Committee shall have complete discretion
         to waive all or a part of the continued employment or service
         requirements and performance standard requirements for payment in
         respect of one or more performance units that are not Qualifying Awards
         (as defined below).

                  (E) Performance units awarded under the Program may not be
         transferred except by will or the laws of descent and distribution and,
         during the lifetime of the participant to whom awarded, payment may be
         made with respect to such performance units only to the participant or
         such participant's personal representative.

         SECTION 7. RESTRICTED SHARES.

                  (A) Awards of restricted shares of Common Stock of the Company
         shall be granted to participants by the Committee from time to time in
         its discretion. Upon the grant of such an Award to a participant, the
         Committee shall notify the participant in writing of the terms of such
         Award, as described below. Each Award of restricted shares shall be
         evidenced by an agreement which shall contain such terms and conditions
         as may be approved by the Committee and which are consistent with the
         applicable provisions of the Program and shall be signed by an officer
         of the Company and the participant.

                  (B) No consideration will be paid by a participant pursuant to
         an Award of restricted shares under the Program.

                  (C) Except as provided for in Section 7(D) and Section 7(F)
         below, restricted shares awarded to a participant under the Program
         shall vest in the participant during a period commencing on the date
         such shares are awarded to a participant and ending on a date to be
         specified by the Committee, in accordance with a vesting schedule to be
         determined by the Committee in its discretion and specified in the
         Award. Subject to the immediately preceding sentence, the Committee may
         condition the vesting of any restricted shares awarded after November
         7, 1995 on any additional terms and conditions (including performance
         achievement goals applicable to all or any portion of the overall
         vesting period) for such period or periods as shall be determined by
         the Committee. If the Award document relating to any Award of
         restricted shares granted prior to November 7, 1995 fails to contain
         any vesting schedule, then such shares shall vest in equal annual
         installments (of 20% on each anniversary of the Award date) over the
         five year period commencing on the date such shares are awarded.

                           (i) To the extent that the shares remain non-vested
                  under the vesting schedule and any additional vesting terms
                  and conditions set by the Committee, such shares shall be
                  deemed to be subject to a Restriction Period. The Restriction
                  Period for restricted shares shall terminate when and to the
                  extent that such shares vest in the participant in accordance
                  with their stated vesting terms or in accordance with the
                  accelerated vesting provided in Section 7(D), Section 7(F) or
                  the terms of any Award implementing the provisions of Section
                  12 below, subject, in each case, to the need for Qualifying
                  Awards to comply with Section 10, and except to the extent
                  such shares have been forfeited as provided in Section 7(E) or
                  7(G) below.

                           (ii) Restricted shares under the Program which are
                  subject to a Restriction Period may not be assigned,
                  transferred, pledged or otherwise encumbered or disposed of,
                  except by forfeiture to the Company as provided in Section
                  7(E) or 7(G) below.

                           (iii) During the applicable Restriction Period: (x)
                  the Company shall retain possession of the certificates for
                  restricted shares awarded under the Program, (y) the
                  participant shall execute and deliver to the Company a stock
                  power in blank with respect to such shares and (z) the
                  participant shall be entitled to full dividend and voting
                  rights in respect of such shares. After the end of the
                  applicable Restriction Period, the restrictions imposed under
                  the Program

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                  shall cease to apply to the shares previously subject to such
                  Restriction Period and the certificates for such shares shall
                  be delivered to the participant.

                  (D) In the event of termination of employment (or service as a
         non-employee director) by reason of death, disability or retirement at
         normal retirement age under the Company's Retirement Plan or any
         applicable Retirement Plan of any of the Company's subsidiaries (or any
         applicable retirement policy for non-employee directors), the
         restrictions imposed under the Program in respect of any Awards then
         subject to a Restriction Period, except Qualifying Awards, shall
         terminate as of the date of such termination of employment (or service
         as a non-employee director).

                  (E) In the event of termination of employment (or service as a
         non-employee director) for any reason other than as provided in Section
         7(D) above, a participant shall forfeit all rights in respect of any
         shares then subject to a Restriction Period as of the date of such
         termination of employment (or service as a non-employee director),
         absent a contrary determination by the Committee pursuant to the terms
         of any Award implementing the provisions of Section 12 in connection
         with a Change in Control Event.

                  (F) With respect to restricted share Awards granted prior to
         1997, in the event of a merger, consolidation, sale of all or
         substantially all of the Company's assets, or other corporate
         reorganization in which the Company is not the surviving corporation,
         the restrictions imposed under the Program in respect of any shares
         then subject to a Restriction Period shall terminate as of the date of
         such event or as of such earlier date as determined by the Committee.
         With respect to restricted share Awards granted after 1996, the terms
         of the particular Awards will govern the extent (if any) to which the
         restrictions on such restricted shares may terminate as a result of any
         transaction described in the immediately preceding sentence, and in
         such regard may refer to the provisions of Section 12.

                  (G) To the extent all or a portion of a restricted share Award
         is subject to additional vesting terms and conditions (such as
         performance goals) imposed by the Committee to supplement the vesting
         schedule established for such Award, and such additional terms and
         conditions are not satisfied during the applicable period established
         for satisfying such terms and conditions, the restricted shares subject
         to such additional vesting terms and conditions shall be forfeited as
         of the end of the period during which such vesting terms and conditions
         were to be satisfied. This special forfeiture provision applies only to
         the number of restricted shares for which a special vesting term or
         condition is not satisfied. To the extent a portion of the restricted
         shares granted initially as part of the same Award are not subject to
         any special vesting terms or conditions (other than the vesting
         schedule based on continued employment (or service as a non-employee
         director) over the vesting period) or are subject to special terms and
         conditions that have been satisfied, or may be satisfied by a later
         deadline, such restricted shares shall not be forfeited pursuant to
         this Section 7(G) unless and until the later deadline for satisfying
         any remaining special terms and conditions occurs without such terms
         and conditions being satisfied.

         SECTION 8. PHANTOM STOCK UNITS. Awards of phantom stock units ("phantom
units") shall be based on a number of phantom shares of Common Stock determined
by the Committee. The Company shall establish a book account ("Book Account") on
its records for each participant receiving an Award of phantom stock units and
shall credit to a participant's Book Account the number of phantom shares of
Common Stock granted to such participant pursuant to the Award. No actual shares
of Common Stock or other certificates shall be issued to a participant when a
phantom unit Award is granted. Phantom unit Awards shall be evidenced by written
agreements in such form as the Committee shall approve from time to time. A
participant shall earn the amount credited to his or her Book Account from time
to time in accordance with a schedule established by the Committee. The schedule
shall provide that a participant's interest will be earned in one or more
increments over a period of time determined by the Committee and may require
that certain performance goals be achieved. The Committee may establish a
different schedule for each phantom unit Award and each participant.

                  (A) From the time a phantom unit Award has been granted until
         the time it is settled or forfeited, the participant to whom the
         phantom units were awarded shall be entitled to receive, as additional
         compensation, cash payments equivalent to the amount of dividends that
         would be paid with respect to a number of shares of Common Stock
         corresponding to the number of phantom units represented by such Award.

                  (B) No Award of phantom units shall confer on the participant
         any voting rights unless and until such phantom unit Award is paid to
         the participant in the form of actual shares of Common Stock.

                  (C) Except as otherwise provided in Section 10 with respect to
         Qualifying Awards, if a participant ceases employment with (or service
         as a non-employee director of) the Company and its subsidiaries as a
         result of death, disability or retirement at normal retirement age
         under the Company's Retirement Plan or any applicable Retirement Plan
         of any of the Company's subsidiaries (or any applicable retirement
         policy for non-employee directors), such participant (or his or her
         beneficiary) shall be entitled to such participant's full interest in
         any phantom unit Award (whether or not earned) on the date of such
         termination (to the extent not previously paid). Upon termination of
         employment with (or service as a non-employee director of) the Company
         and its subsidiaries for any other reason, a participant's interest in
         any unearned phantom unit Awards shall be forfeited, absent a contrary
         determination by the Committee pursuant to the terms of any Award
         implementing the provisions of

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         Section 12 in connection with a Change in Control Event.
         Notwithstanding the preceding sentence, whenever a phantom unit Award
         is granted in substitution for restricted shares that were subject to
         an Award granted prior to 1997 and that are surrendered and cancelled
         in connection with the grant of such phantom unit Award, the Committee
         may provide in such phantom unit Award that such phantom units will
         become fully earned under the same circumstances as the restrictions
         applicable to the cancelled restricted shares would have terminated
         pursuant to Section 7(F).

                  (D) When the Committee determines that a phantom unit Award is
         to be granted, the Committee shall give the participant an opportunity
         to elect the time(s) at which the amount credited to his or her Book
         Account, once earned, is to be paid in a form of payment determined
         under Section 8(E) below. Thereafter, the participant may make one or
         more superseding elections to modify an earlier election in order to
         further defer (but not accelerate) the time(s) of payment, provided
         that any superseding election must be made prior to the tax year in
         which the payments affected by the further deferral would have
         otherwise been made. All elections under this Section 8(D) shall be
         made subject to the provisions of Section 8(E) below and to the
         following:

                           (i) An election may specify that the amount credited
                  to a participant's Book Account will be paid to the
                  participant in increments as soon as each increment becomes
                  earned.

                           (ii) Alternatively, an election may specify that the
                  earned amounts credited to a participant's Book Account will
                  be paid to the participant in a lump sum or in increments at a
                  specified time or times after they become earned even though
                  the participant has not yet retired, or in substantially equal
                  annual installments commencing as soon as practicable
                  following the participant's retirement from employment with
                  (or service as a non-employee director of) the Company and its
                  subsidiaries. At the time the participant makes an election,
                  the participant shall designate the period over which the
                  installment payments will be made. The Committee will have
                  discretion to modify the form of installment payment
                  designated by the participant, if the Committee deems such a
                  modification to be appropriate and in the best interests of
                  the Company. If a participant elects the deferred payment form
                  of payment and dies after the installment payments begin, the
                  remaining installments will be paid to the participant's
                  beneficiary according to the schedule of installments
                  designated by the participant.

                           (iii) The Committee may specify in a phantom unit
                  Award or by rules adopted and amended from time to time
                  reasonable limits on the minimum amounts and the frequency of
                  payments that shall be required for a participant to elect
                  multiple installments and a maximum time period (no sooner
                  than five years following termination of a participant's
                  employment (or service as a non-employee director)) during
                  which all earned amounts shall be paid.

                  (E) Subject to any restrictions on the form of payment that
         may be specified by the Committee in the terms of any phantom unit
         Award, the Committee shall determine whether a payment shall be made:
         (i) in whole shares of Common Stock equal to the number of whole
         phantom shares of Common Stock credited to the participant's Book
         Account, (ii) in cash, or (iii) in a combination of whole shares of
         Common Stock and cash, in such proportions as the Committee deems
         appropriate. When a payment is made in cash, the phantom shares of
         Common Stock then credited to the participant's Book Account shall be
         valued, for purposes of the payment, at the fair market value of a
         share of Common Stock at the time the payment is made.

                  (F) The Committee shall have the right to defer payment of a
         participant's phantom unit Awards, when earned, to the extent that the
         sum of (i) the participant's phantom unit Awards that have been earned
         and are scheduled to be settled plus (ii) all other "compensation" (as
         defined for purposes of Section 162(m) of the Code) with respect to the
         participant for the taxable year in which settlement of the earned
         phantom unit Awards would otherwise be deductible, may not be
         deductible by the Company by reason of Section 162(m) of the Code, as
         determined by the Committee in its sole discretion. A phantom unit
         Award deferred pursuant to this Section 8(F) shall be settled in
         subsequent taxable years of the Company to the extent that the sum of
         the participant's deferred, but earned, phantom unit Awards and all
         other "compensation" with respect to the participant would be
         deductible by the Company under Section 162(a) of the Code. This
         Section 8(F) shall apply only to the extent that the Committee
         determines in its sole discretion that the deferral could allow
         settlement of the phantom unit Awards to be deductible in a future
         year. The Committee's determination shall be final and binding.

         SECTION 9. UNRESTRICTED SHARES. Awards of unrestricted shares of Common
Stock of the Company may be granted by the Committee from time to time in its
discretion to participants in consideration of services rendered to the Company
or its subsidiaries; provided that the Committee obtains adequate authorization
(whether in advance or as ratification) from the Board of Directors to the
extent required to comply with Sections 33-6-210(b) and 33-8-250(e)(8) of the
South Carolina Business Corporation Act of 1988, as it may be amended from time
to time (the "SCBCA"), or any successor provisions, all as in effect at the time
of any such grants. Without limiting the preceding sentence, but subject to the
proviso therein, Awards of unrestricted shares may be granted by the Committee
from time to time to directors of the Company or its subsidiaries in lieu of or
as a supplement to cash fees for services rendered as directors.

         SECTION 10. QUALIFYING AWARDS. The Committee may, in its sole
discretion, grant an Award (other than unrestricted shares) to any participant
with the intent that such Award as "performance-based compensation" under
Section 162(m) of the Code (a

                                       19
<PAGE>   7

"Qualifying Award"). Qualifying Awards may be issued as stock options or, if the
settlement or vesting of the Award is conditioned upon achievement of
performance goals established pursuant to Section 10(A) below, as restricted
shares, phantom stock units or performance units. Unless otherwise specified in
writing by the Committee, either at the time an Award is granted or at any time
thereafter, all Awards issued under the Program that are either stock options or
Awards as to which the settlement or vesting of the Award is conditioned upon
achievement of performance goals established by the Committee in accordance with
Section 10(A) below, shall be treated as Qualifying Awards. The provisions of
this Section 10, as well as other applicable provisions of the Plan not
inconsistent with this Section 10, shall apply to all Qualifying Awards issued
under the Program.

                  (A) For Qualifying Awards, all amounts received upon the
         settlement or vesting of restricted shares, phantom stock units and
         performance units shall be based upon the attainment of performance
         goals established by the Committee in accordance with Section 162(m) of
         the Code. Such performance goals may vary by participant and by Award.
         For Awards granted on or after May 6, 1997 (or granted prior to such
         date if their grant was conditioned upon approval of amendments to the
         Program by the shareholders at their annual meeting on May 6, 1997),
         such performance goals shall be based on any one or more (or any
         combination) of the following business criteria: revenues, net income
         (before or after tax), earnings, earnings per share, shareholders'
         equity, return on equity, assets, return on assets, capital, return on
         capital, book value, economic value added, operating margins, profit
         margins, cash flow, shareholder return, expenses, sales or market
         share, expense management, return on investment, improvements in
         capital structure, budget comparisons, profitability of an identifiable
         business unit or product, or stock price, or shall be based on any one
         or more (or any combination) of the foregoing business criteria: (1)
         before the effect of acquisitions, divestitures, accounting changes,
         restructuring or other special charges or other extraordinary items or
         (2) after giving effect to an adjustment to reflect any such
         transaction or extraordinary item, to the extent in each such case the
         Committee specifies, when granting the Award, that the effect of any
         such transactions or extraordinary items shall be disregarded or that a
         particular formula or other objective method shall be used to make an
         appropriate adjustment to reflect any such transaction or extraordinary
         item.

                           (i) The foregoing business criteria and the
                  performance goals established by the Committee may be
                  applicable to the Company as a whole, one or more of its
                  subsidiaries, divisions, business units or business lines, or
                  any combination of the foregoing. The performance goals also
                  may be based on the attainment of specified levels of Company
                  performance under one or more of the business criteria
                  described above relative to the performance of other
                  corporations.

                           (ii) The Committee may condition the settlement or
                  vesting of any such Award on the attainment of other
                  conditions, such as completion of a period of service, that
                  must be satisfied in addition to the performance goal or goals
                  specified in the Award and that may apply during the same or a
                  different time period than the period used for the performance
                  goal or goals.

                  (B) The Committee shall have the discretion, by participant
         and by Award, to reduce (but not to increase) some or all of the amount
         that would otherwise be payable under the Award by reason of the
         satisfaction of the performance goals set forth in the Award. In making
         any such determination, the Committee is authorized to take into
         account any such factor or factors it determines are appropriate,
         including but not limited to Company, business unit and individual
         performance.

                  (C) Prior to payment of any Qualifying Award, the Committee
         shall certify in writing that the performance goals and any other
         material terms of the Award were in fact satisfied, all in a manner
         consistent with the applicable regulations under Section 162(m) of the
         Code. Such certification shall not be required, however, for
         compensation that is attributable solely to an increase in the value of
         the Company's Common Stock.

                  (D) If a participant leaves employment with the Company and
         its subsidiaries as a result of death or disability, any stock options
         shall become fully exercisable and any restrictions with respect to any
         other forms of Qualifying Awards shall terminate, in each case as of
         the date of such termination, subject to the Committee's authority
         under Section 10(E) as to the timing or receipt, payment or settlement
         of such Qualifying Award. In the event of termination of employment for
         any other reason, including retirement: (i) the extent to which and the
         period of time during which stock options can be exercised shall be
         governed by Section 5, and (ii) a participant shall forfeit all rights
         that have not become vested or earned in respect of any other form of
         Qualifying Awards as of the date of such termination, subject to the
         Committee's authority under Section 10(E) as to the timing of receipt,
         payment or settlement of such Qualifying Award.

                  (E) Except in the case of a stock option (as to which the
         holder decides when to exercise consistent with applicable provisions
         in the Program and option agreement), the Committee is authorized to
         defer or accelerate the actual receipt, payment or settlement of any
         Qualifying Award to the extent it is or becomes vested or owned, and
         the applicable performance goals have been satisfied, at or prior to
         the time of termination of the holder's employment for any reason
         (including Awards that become vested or owned in accordance with this
         Section 10 and Section 5 as a result of such termination) or to the
         extent the Qualifying Award is or will be vested or owned, and the
         applicable performance goals have been satisfied, at the time of
         receipt, payment or settlement during employment; provided, however,
         that if any "payment of compensation" (other than a "transfer of
         property"), as

                                       20
<PAGE>   8

         such terms are used in the regulations adopted under Section 162(m), is
         accelerated, the amount of compensation paid shall be discounted to
         reasonably reflect the time value of money, except to the extent such
         discounting is not necessary to comply with the regulations under
         Section 162(m) of the Code when acceleration occurs as a result of
         termination of employment due to the death or disability of a holder of
         an Award.

                  SECTION 11. WITHHOLDING. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock or issue a certificate free
of restrictions for vesting shares previously subject to forfeiture under the
Program, the Company shall have the right to require the participant to remit to
the Company an amount sufficient to satisfy any applicable federal, state and
local withholding tax requirements prior to the delivery of any certificate or
certificates for such shares. Whenever under the Program payments are to be made
in cash, such payments shall be net of an amount sufficient to satisfy any
applicable federal, state and local withholding tax requirements. A participant
may elect with respect to any stock option (other than an incentive stock
option), restricted share award, restricted stock unit or performance unit to
surrender or authorize the Company to withhold shares of Common Stock (valued at
current fair market value on the date of surrender or withholding of the shares)
in satisfaction of all such applicable withholding requirements (the "Stock
Surrender Withholding Election"); provided, however, that:

                  (A) Any Stock Surrender Withholding Election shall be made by
         written notice to the Company and thereafter shall be irrevocable by
         the participant;

                  (B) If a participant is an "officer" of the Company or other
         person subject to Section 16 of the Securities Exchange Act of 1934, as
         amended (the "Exchange Act"), or any successor law, any Stock Surrender
         Withholding Election shall be subject to any additional rules
         established from time to time by the Committee;

                  (C) Any Stock Surrender Withholding Election must be made
         prior to the date on which the participant recognizes taxable income
         with respect to the receipt of such shares (the "Tax Date");

                  (D) When the Tax Date falls after the exercise of a stock
         option and the participant makes a Stock Surrender Withholding
         Election, the full number of shares of Common Stock subject to the
         stock option being exercised will be issued, but the participant will
         be unconditionally obligated to deliver to the Company on the Tax Date
         a number of shares of Common Stock having a value on the Tax Date equal
         to the participant's federal, state and local withholding tax
         requirements; and

                  (E) For purposes of this Section, the Committee shall have the
         discretion to provide (by general rule or a provision in a specific
         Award document) that, at the election of the participant (and subject
         to such conditions as the Committee may impose by general rule or in a
         provision in a specific Award document), "federal, state and local
         withholding tax requirements" shall be deemed to be any amount
         designated by the participant which exceeds the amount required by
         applicable law and governmental regulations to be withheld but which
         does not exceed the participant's total estimated federal, state and
         local tax obligations associated with the transaction, including FICA
         taxes to the extent applicable.

         Shares subject to an Award under the Program that are surrendered or
withheld under this Section 11 to satisfy a participant's federal, state and
local withholding tax obligations shall not thereby become available for use
again under the Program.

         SECTION 12. COMMITTEE AUTHORITY TO ACCELERATE RIGHT OF EXERCISE AND
ACCELERATE VESTING IN CERTAIN CIRCUMSTANCES. The Committee may determine when
granting any Award (and may specify in the Award document) or may determine at
any time after granting an Award (in circumstances deemed appropriate by the
Committee) that notwithstanding the fact that an outstanding stock option has
not otherwise become exercisable in full in accordance with its terms and
notwithstanding any conditions to the vesting or earning of a participant's
rights with respect to any Award of restricted shares, phantom stock units or
performance units, such Award shall become fully exercisable (in the case of
stock options) or otherwise shall become fully exercisable and fully vested and
earned upon a "Change in Control Event" described in this Section 12 or upon any
termination of such participant's employment with (or service as a director of)
the Company or its subsidiary or significant reduction in such participant's
responsibilities or compensation following any such Change in Control Event.
Such determinations may be different as to different Awards.

                  (A) A "Change in Control Event" shall be deemed to have
         occurred if:

                           (i) a tender offer or exchange offer has been made
                  (other than by the Company, any of its subsidiaries, any
                  employee benefit plan of the Company or of any of its
                  subsidiaries, or any person organized, appointed or
                  established by the Company or any of its subsidiaries for or
                  pursuant to the terms of any such plan) if, upon consummation
                  thereof, the corporation, person or other entity making such
                  offer would become an Acquiring Person (as defined below), and
                  provided that the corporation, person or other entity making
                  such offer purchases or otherwise acquires shares of the
                  Company's Common Stock pursuant to such offer; or

                           (ii) any person, entity or "group," within the
                  meaning of Section 13(d)(3) or 14(d)(2) of the Securities
                  Exchange Act of 1934, as amended (the "Exchange Act")
                  (excluding, for this purpose, any employee benefit plan of the

                                       21
<PAGE>   9

                  Company or of any of its subsidiaries, or any person
                  organized, appointed or established by the Company or any of
                  its subsidiaries for or pursuant to the terms of any such plan
                  which acquires beneficial ownership of voting securities of
                  the Company) becomes an Acquiring Person (other than through
                  acquisitions from the Company or in a transaction approved by
                  the "Incumbent Board" as defined below); or

                           (iii) the individuals who constitute the Incumbent
                  Board fail for any reason to continue to constitute at least a
                  majority of the Board of Directors. The "Incumbent Board" at
                  any time shall mean the persons who are then members of the
                  Board of Directors and who (a) are members of the Board of
                  Directors as of February 4, 1997 or (b) become members of the
                  Board of Directors thereafter upon election, or nomination for
                  election by the Company's shareholders, by a vote of at least
                  a majority of the Incumbent Board (other than an election or
                  nomination of an individual whose initial assumption of office
                  is in connection with an actual or threatened election contest
                  relating to the election of the directors of the Company, as
                  such terms are used in Rule 14a-11 of Regulation 14A
                  promulgated under the Exchange Act.)

         For purposes hereof, "Acquiring Person" means any person or group of
         affiliated or associated persons that, after February 4, 1997, becomes
         the beneficial owner (within the meaning of Rule 13d-3 promulgated
         under the Exchange Act) of 20% or more of either the then outstanding
         shares of the Company's Common Stock or the combined voting power of
         the Company's then outstanding voting securities entitled to vote
         generally in the election of directors; provided however, that such
         term does not include any person who beneficially owns 20% or more of
         either the Company's Common Stock or the combined voting power of the
         Company's then outstanding voting securities entitled to vote generally
         in the election of directors: (x) as a result of the reduction in the
         number of shares of Common Stock outstanding due to the Company's
         acquisition of its Common Stock; (y) as a result of (1) a will or the
         laws of descent and distribution, (2) the transfer of shares to any
         member of the transferor's immediate family or to a trust for the
         benefit of a member of the transferor's immediate family (a "Transferee
         Trust"), (3) a divorce decree or settlement or (4) the transfer of
         shares held on February 4, 1997 by any trust or held at any time by a
         Transferee Trust to any beneficiary of such trust; or (z) as a result
         of any acquisition by such person of shares pursuant to any employee
         benefit plan of the Company or of any of its subsidiaries.

                  (B) The relevant Change in Control Event shall be deemed to
         occur:

                           (i) in the event of Section 12(A)(i) above, on or
                  after the date on which shares are purchased pursuant to such
                  tender or exchange offer; or

                           (ii) in the event of Section 12(A)(ii) above, at any
                  time after the date upon which the Company is provided a copy
                  of Schedule 13D (filed pursuant to Section 13(d) of the
                  Exchange Act and the rules and regulations promulgated
                  thereunder) or other notice indicating that any person, entity
                  or group has become an Acquiring Person or, if the Company is
                  not subject to Section 13(d) of the Exchange Act, at any time
                  after the date upon which the Company receives written notice
                  that any person, entity or group has become an Acquiring
                  Person; or

                           (iii) in the event of Section 12(A)(iii) above, on or
                  after the occurrence of such failure.

         SECTION 13. REGULATORY AND OTHER LEGAL REQUIREMENTS. All aspects of
this Program shall be subject to applicable laws, rules, regulations and
approvals required by governmental entities and stock exchanges. Without
limiting the foregoing, the issuance of shares of the Company's Common Stock
under the Program is subject to applicable provisions of the SCBCA (or any
successor laws); without in any way abdicating its decision making authority in
connection with the grant of any Awards hereunder (including, but not limited
to, the Committee's authority to establish and administer performance goals and
certify as to the attainment of any such performance goals), the Committee may
obtain further parameters from the Board of Directors within which to exercise
the Committee's authority or may obtain ratification of the Committee's
decisions by the full Board of Directors or may do both to the extent deemed
appropriate to comply with the SCBCA (including Sections 33-6-210(b) and
33-8-250(e)(8)) or any successor laws.

         SECTION 14. GRANTOR TRUSTS. The Committee may, in its discretion and in
a manner consistent with Section 13, establish one or more grantor trusts (with
such terms as the Committee may determine) and contribute shares of Common Stock
and such other assets as may be deemed desirable for use in satisfying the
Company's obligations to one or more participants under one or more Awards
granted hereunder. The creation and funding of any such trust with respect to
one or more Awards shall not create any obligation on the part of the Company or
any rights in participants receiving other Awards to have the same or any
similar trust created or funded with respect to other Awards. If any such trust
is used for purposes of satisfying the Company's obligations to any participant
under an Award, the Company shall be relieved of its obligation to satisfy any
claim for benefits under such Award to the extent such participant receives a
distribution from the trust of the shares of Common Stock or other assets due in
accordance with the Award, but the Company shall remain liable for any balance
due that is not received from such trust.

         SECTION 15. TERM. This Program initially became effective May 3, 1983
for ten years and was amended, with shareholder approval, in 1990 to extend its
term to May 1, 2000. Subject to approval of certain amendments by the
shareholders of the Company at their

                                       22
<PAGE>   10

annual meeting to be held on May 6, 1997 or at any adjournment thereof, this
Program has been further amended, effective on the date of such shareholder
approval, to extend its term to May 6, 2007 unless terminated at an earlier date
by the Board. No Awards shall be granted after termination of the Program, but
any then outstanding Awards shall continue in effect for the remainder of their
respective terms, subject to the conditions of such Awards. No incentive stock
options may be granted after February 4, 2007, which is ten years after the
Committee's adoption of the Program as most recently extended and restated.

         SECTION 16. AMENDMENTS AND DISCONTINUANCE. The Committee may amend,
suspend, or discontinue the Program; provided, however, that the Committee may
condition the effectiveness of any amendment on shareholder approval to the
extent the Committee determines that shareholder approval is necessary or
desirable to qualify for: certain tax deductions or other desired treatment
under Section 162(m) or other Sections of the Code and related regulations of
the Internal Revenue Service, all as amended from time to time; certain
exemptions under Section 16 of the Securities Exchange Act of 1934 and related
rules adopted by the Securities and Exchange Commission, all as amended from
time to time; or any other desired exemption or treatment under any applicable
law or regulation. Notwithstanding the foregoing, no such amendment shall
materially and adversely affect the rights of any participant as to any Award
then outstanding without the consent of such participant.

                                       23<PAGE>   1

                                                                   EXHIBIT 10.14

                           CARAUSTAR INDUSTRIES, INC.
                  1998 KEY EMPLOYEE INCENTIVE COMPENSATION PLAN

                   (AMENDED AND RESTATED AS OF APRIL 19, 2000)

                                   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.

<PAGE>   2

         2.9 "Committee" shall have the meaning set forth in SECTION 5.1.

         2.10 "Common Stock" shall have the meaning set forth in SECTION 3.1.

         2.11 "Company" has the meaning set forth in SECTION 1.1.

         2.12 "Covered Employee" means an Employee who is a "covered employee"
within the meaning of Section 162(m) of the Code.

         2.13 "Disability" means a disability under the terms of the Caraustar
Industries, Inc. Long-Term Disability plan maintained by the Company or any
successor plan thereto.

         2.14 "Economic Profit" means a measure of the after-tax operating
profit of the Company less a charge for the cost of all debt and equity capital
of the Company.

         2.15 "Effective Date" means the date an Award is determined to be
effective by the Committee upon its grant of such Award. In the case of Stock
Options, the Effective Date shall be the date of grant.

         2.16 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor provisions
and rules thereto.

         2.17 "Incentive Stock Option" shall have the meaning set forth in
SECTION 6.2(B).

         2.18 "Key Employee" has the meaning set forth in Article 4.

         2.19 "Negative Discretion" means the discretion authorized by the Plan
to be applied by the Committee in determining the size of a Bonus Award or a
Stock Option Award if, in the Committee's sole judgment, such application is
appropriate. Negative Discretion may only be used by the Committee to eliminate
or reduce the size of an Award.

         2.20 "Non-Qualified Stock Option" shall have the meaning set forth in
SECTION 6.2(C).

         2.21 "Option Period" means the one year periods, as the Committee may
select, over which the attainment of one or more Performance Goals will be
measured for the purpose of determining a Participant's right to an Award under
the Option Program.

         2.22 "Option Target Award" means, for an Option Period, the target
Award amount, expressed as a number of Stock Options, established for each
Participant for the Option Period.

         2.23 "Participant" means any Key Employee who for an Option Period has
been selected to participate in the Option Program pursuant to Article 7 or who
for a Bonus Period has been selected to participate in the Bonus Program
pursuant to Article 8 or who has been selected 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

                                       2
<PAGE>   3

Period. The Performance Criteria that will be used to establish such Performance
Goal(s) shall be limited to the following: Economic Profit, return on net
assets, return on shareholders' equity, return on assets, return on capital,
earnings per share, net earnings, operating earnings and Common Stock price per
share.

         2.25 "Performance Goal" means, for an Option Period or Bonus Period,
the one or more goals established by the Committee for the Option or Bonus
Period based upon the Performance Criteria. The Committee is authorized at any
time during the first 90 days of an Option Period or Bonus Period, or at any
time thereafter (but only to the extent the exercise of such authority after the
first 90 days of an Option Period or Bonus Period would not cause the Awards
granted to the Covered Employees for the Option Period or Bonus Period to fail
to qualify as "performance-based compensation" under Section 162(m) of the
Code), in its sole and absolute discretion, to adjust or modify the calculation
of a Performance Goal for such Option Period or Bonus Period in order to prevent
the dilution or enlargement of the rights of Participants, (a) in the event of,
or in anticipation of, any unusual or extraordinary corporate item, transaction,
event or development; (b) in recognition of, or in anticipation of, any other
unusual or nonrecurring events affecting the Company, or the financial
statements of the Company, or in response to, or in anticipation of, changes in
applicable laws, regulations, accounting principles, or business conditions; and
(c) in view of the Committee's assessment of the business strategy of the
Company, performance of comparable organizations, economic and business
conditions and any other circumstances deemed relevant.

         2.26 "Performance Stock Option" shall have the meaning set forth in
SECTION 6.2(A).

         2.27 "Plan" shall have the meaning set forth in SECTION 1.1.

         2.28 "Related Companies" means any company during any period in which
it is a "parent company" (as that term is defined in Section 424(e) of the Code)
with respect to the Company, or a "subsidiary corporation" (as that term is
defined in Code Section 424(f) of the Code) with respect to Caraustar.

         2.29 "Restricted Share Right" shall have the meaning set forth in
SECTION 6.4.

         2.30 "Restricted Share Right Percentage" shall have the meaning set
forth in SECTION 7.5.

         2.31 "Restricted Stock" means Common Stock subject to the restrictions
set forth in SECTION 6.3 awarded to a Key Employee pursuant to the exercise of a
Restricted Stock Right.

         2.32 "Restriction Period" means the period of time beginning on the
Effective Date of an Award of Restricted Stock and ending five (5) year(s) after
such date, or such other period as the Committee shall determine in its sole
discretion.

         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."

                                       3
<PAGE>   4

         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.

                                       4
<PAGE>   5
         (b) For purposes of calculating the maximum number of shares of Common
Stock which may be issued under the Plan:

                  (i)   all the shares of Common Stock and shares of Restricted
         Stock issued directly or as a result of the exercise of Stock Options
         and Restricted Share Rights (including the shares, if any, withheld for
         tax withholding requirements) shall be counted.

                  (ii)  any shares of Common Stock subject to a Stock Option
         that for any reason is terminated unexercised or expires shall again be
         available for issuance under the Plan, but shares of Restricted Stock
         that are forfeited or shares subject to Restricted Share Rights
         terminated without the issuance of shares shall not again be available
         for issuance under the Plan.

                  (iii) shares of Common Stock received by the Company in
         connection with the exercise of Stock Options by delivery of other
         shares of Common Stock, and received in connection with payment of
         withholding taxes related to Awards under this Plan, shall again be
         available for issuance under the Plan.

         (c) The maximum number of shares available for issuance under the Plan
shall not be reduced to reflect any dividends or dividend equivalents that are
reinvested into additional shares of Common Stock.

         (d) The shares of Common Stock available for issuance under the Plan
may be newly issued shares, authorized and unissued shares, treasury shares,
shares issued and outstanding or shares owned by a Related Company.

         3.2 Adjustment to Shares.

         (a) In General. The provisions of this SUBSECTION 3.2(A) are subject to
the limitation contained in SUBSECTION 3.2(B). If there is any change in the
number of outstanding shares of Common Stock through the declaration of stock
dividends, stock splits or the like, the number of shares available for Awards,
the shares subject to any Award and the option prices or exercise prices of
Awards shall be automatically adjusted. If there is any change in the number of
outstanding shares of Common Stock through any change in the capital account of
Caraustar, or through a merger, consolidation, separation (including a spin-off
or other distribution of stock or property), reorganization (whether or not such
reorganization comes within the meaning of such term in Section 368(a) of the
Code) or partial or complete liquidation, the Committee shall make appropriate
adjustments in the maximum number of shares of Common Stock that may be issued
under the Plan and any adjustments and/or modifications to outstanding Awards as
it, in its sole discretion, deems appropriate. In event of any other change in
the capital structure or in the Common Stock, the Committee shall also be
authorized to make such appropriate adjustments in 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

                                       5
<PAGE>   6

Award to fail to qualify as "performance-based compensation" under Section
162(m) of the Code.

                                   ARTICLE 4

                                   ELIGIBILITY

         Participants in the Plan shall be selected by the Committee from the
executive officers and other key employees of the Company who occupy responsible
managerial or professional positions and who have the capability of making a
substantial contribution to the success of the Company ("Key Employees"). In
making this selection and in determining the form and amount of awards, the
Committee shall consider any factors deemed relevant, including the individual's
functions, responsibilities, value of services to the Company and past and
potential contributions to the Company's profitability and sound growth.

                                   ARTICLE 5

                               PLAN ADMINISTRATION

         5.1 Administration of Plan by Committee. The Plan shall be administered
by a committee of two or more members of the Board of Directors of Caraustar
selected by the Board (the "Committee"), as constituted from time to time.

         5.2 Authority of Committee.

         (a) The Committee shall have the authority, in its sole discretion and
from time to time, to:

                  (i)   designate the Key Employees eligible to participate in
         the Plan;

                  (ii)  grant Awards provided in the Plan in such form and
         amount as the Committee shall determine;

                  (iii) impose such terms, limitations, restrictions and
         conditions upon any such Award as the Committee shall deem appropriate,
         including but not limited to an acceleration of the vesting and lapsing
         of the restrictions of such Award upon a change in control of the
         ownership of Caraustar; and

                  (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

                                       6
<PAGE>   7

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

                                       7
<PAGE>   8

Performance Stock Option shall be 120% of the closing price at which a share of
Common Stock trades on the Effective Date of the Performance Stock Option Award,
or the next preceding trading day if such date was not a trading date, on the
primary securities exchange on which the Common Stock is then traded.

         (b) Incentive Stock Options. Stock Options may be issued in the form of
incentive stock options, intended to qualify as such under the provisions of
Section 422 of the Internal Revenue Code of 1986, as amended ("Incentive Stock
Options"). To the extent that the aggregate fair market value (determined on the
date the Stock Option is granted) of shares of Common Stock with respect to
which Incentive Stock Options first become exercisable by any Participant in any
calendar year exceeds $100,000, such Stock Options shall be treated as
Non-Qualified Options. The maximum number of shares of Common Stock that may be
issued under this Plan by Incentive Stock Options shall be 1,600,000.

         (c) Non-Qualified Stock Options. Stock Options may be issued in the
form of non-qualified stock options (Stock Options that are not Incentive Stock
Options) ("Non-Qualified Stock Options").

         (d) Terms and Conditions of Stock Options. A Stock Option shall be
exercisable in whole or in such installments and at such times as may be
determined by the Committee. All Stock Options shall expire not later than 10
years after the Effective Date of the grant. Stock Options shall not be
repriced, i.e., there shall be no grant of a Stock Option(s) to a Participant in
exchange for a Participant's agreement to cancellation of a higher-priced Stock
Option(s) that was previously granted to such Participant. The Committee may, by
way of an award notice or otherwise, establish such other terms, conditions,
restrictions, and limitations, if any, of any Award of Stock Options, provided
they are not inconsistent with the Plan.

         (e) Exercise. Upon exercise, the option price of a Stock Option may be
paid in cash, shares of Common Stock, a combination of the foregoing, or such
other consideration as the Committee may deem appropriate. The Committee shall
establish appropriate methods for accepting Common Stock, whether Restricted or
unrestricted, and may impose such conditions as it deems appropriate on the use
of such Common Stock to exercise a Stock Option. Subject to SECTION 13.12, the
Committee may permit a Participant to elect to pay the option price upon the
exercise of a Stock Option by authorizing a third party to sell shares of Common
Stock (or a sufficient portion of the shares) acquired upon exercise of the
Stock Option and remit to the Company a sufficient portion of the sale proceeds
to pay the entire option price and any tax 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

                                       8
<PAGE>   9

of Restricted Stock pursuant to a Restricted Share Right shall be the
"Underlying Shares" of such share of Restricted Stock; provided that during the
Restriction Period of a share of Restricted Stock, the Participant may designate
other unrestricted Common Stock held by the Participant as the "Underlying
Shares" of such share of Restricted Stock, but only to the extent such
unrestricted shares are not then Underlying Shares of any other share of
Restricted Stock. The Committee may, at its discretion, require that the
certificates representing Underlying Shares be deposited with and held by the
Company for the Participant until the restrictions on the related Restricted
Stock have lapsed.

         (b) Terms and Conditions. Shares of Restricted Stock shall be subject
to the following terms and conditions:

                  (i)   Subject to the provisions of the Plan and such other
         terms, conditions, restrictions and limitations as the Committee may
         establish by way of the Restricted Stock Agreement, the Participant
         shall not be permitted to sell, assign, transfer, pledge, or otherwise
         encumber shares of Restricted Stock during the Restriction Period of
         the Restricted Stock.

                  (ii)  Except to the extent otherwise provided in the
         applicable Restricted Stock Agreement, upon the transfer of any
         Underlying Shares (if any) of a share of Restricted Stock during an
         unexpired Restriction Period applicable to such share of Restricted
         Stock, such share of Restricted Stock shall be forfeited by the holder.

                  (iii) Except as provided in the Restricted Stock Agreement and
         this Plan, the Participant shall have, with respect to the shares of
         Restricted Stock, all of the rights of a shareholder of the Company
         holding shares of the Common Stock, including, if applicable, the right
         to vote the shares and the right to receive any cash dividends. If so
         determined by the Committee in the applicable Restricted Stock
         Agreement, dividends payable in Common Stock shall be paid in the form
         of Restricted Stock on which such dividend was paid, held subject to
         the same conditions and restrictions of the underlying Performance
         Restricted Stock.

                  (iv)  Each Restricted Stock award shall be confirmed by, and
         be subject to the terms of, a Restricted Stock Agreement.

         (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.

                                       9
<PAGE>   10

         6.4 Restricted Share Rights.

         (a) In General. The Committee may grant to any Participant the right
("Restricted Share Right") to acquire one share of Restricted Stock contingent
upon the direct purchase of two shares of unrestricted Common Stock (the
"Underlying Shares") by the Participant (either by stock option exercise,
including stock options granted under this Plan and the 1993 Plan, or purchase
of unrestricted shares of Common Stock for full market value).

         (b) Term and Exercise. Each Restricted Share Right shall be fully
exercisable on the date of Effective Date of Award of such Restricted Share
Right and may be exercised up until the date five (5) years after the Effective
Date of the Award of such Restricted Share Right.

         (c) Restricted Share Right Agreement. The award of any Restricted Share
Right shall be evidenced by a written Restricted Share Right Agreement, executed
by the Company and the holder of the Restricted Share Rights, stating the number
of shares of Restricted Stock that may be purchased pursuant to the Restricted
Share Rights, and shall provide for any other terms, restrictions and
limitations as the Committee deems appropriate.

                                   ARTICLE 7

                              STOCK OPTION PROGRAM

         7.1 In General. Awards may be granted to Key Employees in the form of
Stock Options pursuant to this Article 7. These Stock Options may be Incentive
Stock Options, Non-Qualified Stock Options or a combination of both as
determined by the committee in its sole discretion. All Awards under the Plan
issued to Covered Employees in the form of Stock Options shall qualify as
"performance-based compensation" under Section 162(m) of the Code.

         7.2 Selection of Key Employee Participants. Within the first 90 days of
an Option Period (or, if longer, within the maximum period allowed under Section
162(m) of the Code), the Committee shall select those Key Employees who will be
Participants for such Option Period. However, designation of a Key Employee as a
Participant for an Option Period shall not in any manner entitle the Participant
to receive an Award of Stock Options for the Option Period. The entitlement of
any Participant to payment of a Stock Option Award for such Option Period shall
be decided solely in accordance with the provisions of this Article 7 and the
Plan. Moreover, designation of a Key Employee as a Participant for a particular
Option Period shall not require designation of such Key Employee as a
Participant in any subsequent Option Period, and designation of one Key Employee
as a Participant shall not require designation of any other Key Employee as a
Participant in such Option Period or in any other Option Period.

         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.

                                       10
<PAGE>   11

         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.

                                       11
<PAGE>   12

         (e) Timing of Award Payments. The Performance Awards granted by the
Committee for an Option Period shall be paid to Participants on or reasonably
soon after the certification set forth in Section 7.6(c).

         (f) Payment in Restricted Share Rights and Options. If a Participant
has elected (pursuant to Section 7.5) to receive a portion of a Stock Option
Award in Restricted Share Rights (in lieu of Stock Options) such Restricted
Share Rights shall be granted as follows. The Award for an Option Period (as
determined by the certification process set forth in SECTION 7.6(C), whether
paid in Traditional Stock Options or Performance Stock Options, Incentive Stock
Options or Non-Qualified Stock Options), shall be converted into a cash value
using the Black-Scholes option pricing method, with such calculation being done
as of the Effective Date of the Stock Option Award. The Participant shall be
granted a number of Restricted Share Rights equal to the quotient of (a) the
product of (i) the Restricted Share Right Percentage multiplied by (ii) the cash
value of the Stock Option Award so determined, divided by (b) the closing price
at which Common Stock trades on the Effective Date of the Stock Option Award, or
the next preceding trading day if such date was not a trading date, on the
primary securities exchange or quotation system on which the Common Stock is
then traded (such quotient to be rounded to the nearest whole). The remainder of
the Award shall be paid in Stock Options as determined pursuant to Section
7.6(c).

         7.7 Maximum Award Stock Options Per Year Per Participant.
Notwithstanding any provision contained in the Plan to the contrary, the maximum
number of shares of Common Stock for which Stock Options may be granted under
this Article 7 to any Participant in any calendar year is 100,000.

                                   ARTICLE 8

                               BONUS AWARD PROGRAM

         8.1 Eligibility. Within the first 90 days of a Bonus Period (or, if
longer, within the maximum period allowed under Section 162(m) of the Code), the
Committee shall select those Key Employees who will be Participants for such
Bonus Period. However, designation of a Key Employee as a Participant for a
Bonus Period shall not in any manner entitle the Participant to receive a Bonus
Award for the Bonus Period. The entitlement of any Participant to payment of a
Bonus Award for such Bonus Period shall be decided solely in accordance with the
provisions of this Article 8. Moreover, designation of a Key Employee as a
Participant for a particular Bonus Period shall not require designation of such
Key Employee as a Participant in any subsequent Bonus Period, and designation of
one Key Employee as a Participant shall not require designation of any other Key
Employee as a Participant in such Bonus Period or in any other Bonus Period. 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

                                       12
<PAGE>   13

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 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

                                       13
<PAGE>   14

(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 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

                                       14
<PAGE>   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

                                       15
<PAGE>   16

date of such Stock Option), but otherwise shall be subject to all other
restrictions and limitations of such Stock Option.

         (c) Restricted Share Rights. To the extent permitted under Rule 16b-3,
on the date of a Participant's termination of employment with the Company
because of death or Disability, all of the unexercised and outstanding
Restricted Share Rights awarded to the Participant under this Plan shall remain
exercisable for a period of up to one year after the date of such Participant's
termination (but in no event beyond the original expiration date of such
Restricted Share Rights), provided that such Restricted Share Right shall be
exercisable for Shares of unrestricted Common Stock instead of shares of
Restricted Stock.

         10.2 Termination Because of Retirement. If a Key Employee's employment
with the Company terminates because of Retirement, then issued and outstanding
Stock Options, Restricted Share Rights and shares of Restricted Stock awarded to
such Participant pursuant to this Plan (whether or not then held by the
Participant) shall be treated as follows:

         (a) Restricted Stock. To the extent permitted by Rule 16b-3, in the
event of the termination of employment of a Participant because of Retirement,
the outstanding shares of Restricted Stock awarded to a Participant shall remain
outstanding and the terms of such Restricted Stock shall not be affected by such
termination of employment by Retirement; provided that in the event of the
Participant's death subsequent to such Retirement, upon the Participant's death,
the unexpired Restriction Period(s) of then outstanding Restricted Stock awarded
to such Participant shall lapse and such Restricted Stock shall become
unrestricted Common Stock.

         (b) Stock Options. To the extent permitted under Rule 16b-3, on the
date of a Participant's termination of employment with the Company because of
Retirement, the unexercised and outstanding Stock Options awarded to the
Participant shall remain outstanding and the terms of such Stock Options shall
not be affected by such termination of employment by Retirement; provided that
in the event of the Participant's death subsequent to such Retirement, all of
the unexercised and outstanding Stock Options awarded to the Participant under
this Plan shall become fully vested and exercisable, and shall remain
exercisable for a period of up to one year after the date of such Participant's
death (but in no event beyond the original expiration date of such Stock
Option), but otherwise shall be subject to all other restrictions and
limitations of such Stock Option. Incentive Stock Options awarded to a
Participant and not exercised within ninety (90) days of the termination of a
Participant's employment because of Retirement will, to the extent required by
law, become Non-Qualified Stock Option.

         (c) Restricted Share Rights. To the extent permitted under Rule 16b-3,
on the date of a Participant's termination of employment with the Company
because of Retirement, all of 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

                                       16
<PAGE>   17

such Restricted Share Rights) and that such Restricted Share Right shall be
exercisable for shares of unrestricted Common Stock instead of shares of
Restricted Stock.

         10.3 Termination for any Reason Other Than Death, Disability or
Retirement. Upon the termination of Participant's employment by reason other
than Death, Disability or Retirement, issued and outstanding Stock Options,
Shares of Restricted Stock and Stock Rights awarded to a Participant (whether or
not then held by the Participant) shall be treated as follows:

         (a) Restricted Stock. Upon a Participant's termination of employment
during an unexpired Restriction Period for any reason other than death,
Disability or Retirement, all outstanding shares of Restricted Stock awarded to
such Participant still subject to such unexpired Restriction Period shall be
forfeited by the holder.

         (b) Stock Options. If a Participant's employment with the Company
terminates for any reason other than death, Disability or Retirement, all of the
unexercised and outstanding Stock Options awarded to such Participant shall
remain exercisable for a period of up to 90 days after the Participant's
termination (but not beyond the original expiration date of such Stock Options)
to the same extent as they were exercisable on the date of Participant's
termination. The remaining portion of the Stock Option shall be forfeited by the
holder.

         (c) Restricted Share Rights. If a Participant's employment with the
Company terminates for any reason other than death, Disability or Retirement,
all of the unexercised Restricted Share Rights awarded to the Participant under
this Plan shall terminate and shall be forfeited by such Participant.

                                   ARTICLE 11

                        DIVIDEND AND DIVIDEND EQUIVALENT

         If an Award is granted in the form of a Restricted Share Right, Stock
Option, shares of Restricted Stock or Common Stock, or in the form of any other
stock-based grant, the Committee may choose, at the time of the grant of the
Award or any time thereafter up to the time of the Award's payment, to include
as part of such Award an entitlement to receive dividends or dividend
equivalents, subject to such terms, conditions, restrictions, and limitations,
if any, as the Committee may establish. Dividends and dividend equivalents shall
be paid in such form and manner (i.e., lump sum or installments) and at such
time(s) as the Committee shall determine. All dividends or dividend equivalents
that are not paid currently may, at the Committee's discretion, accrue interest
or be reinvested into additional shares of Common Stock. The total number of
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.

                                       17
<PAGE>   18

                                   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.

         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

                                       18
<PAGE>   19

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

                                       19
<PAGE>   20

absence taken by the recipient of any award. Without limiting the generality of
the foregoing, the Committee shall be entitled to determine (i) whether or not
any such leave of absence shall constitute a termination of employment within
the meaning of the Plan and (ii) the impact, if any, of any such leave of
absence on Awards under the Plan theretofore made to any Participant who takes
such leave of absence.

         13.10 Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of North Carolina, except as superseded by
applicable federal law.

         13.11 No Right, Title, or Interest in Company Assets. No Participant
shall have any rights as a shareholder as a result of participation in the Plan
until the date of issuance of a stock certificate. To the extent any person
acquires a right to receive payments from the Company under the Plan, such
rights shall be no greater than the rights of an unsecured creditor of the
Company and the Participant shall not have any rights in or against any specific
assets of the Company. All of the Awards granted under the Plan shall be
unfunded.

         13.12 Section 16 of the Exchange Act. In order to avoid any Exchange
Act violations, the Committee may, from time to time, impose additional
restrictions upon an Award, including but not limited to, restrictions regarding
tax withholdings and restrictions regarding the Participant's ability to
exercise Awards under any broker or third-party assisted exercise program.

         13.13 No Guarantee of Tax Consequences. No person connected with the
Plan in any capacity, including, but not limited to, Caraustar and its Related
Companies and their directors, officers, agents and employees makes any
representation, commitment, or guarantee that any tax treatment, including, but
not limited to, Federal, state and local income, estate and gift tax treatment,
will be applicable with respect to amounts deferred under the Plan, or paid to
or for the benefit of a Participant under the Plan, or that such tax treatment
will apply to or be available to a Participant on account of participation in
the Plan.

         13.14 Compliance with Section 162(m). If any provision of the Plan
would cause the Awards, other than an Award of Restricted Share Rights pursuant
to Article 9, granted to a Covered Person not to qualify as "performance-based
compensation" under Section 162(m) of the Code, that provision, insofar as it
pertains to the Covered Person, shall be severed from, and shall be deemed not
to be a part of this Plan, but the other provisions hereof shall remain in full
force and effect.

         13.15 Other Benefits. No Award granted under the Plan shall be
considered compensation for purposes of computing benefits under any retirement
plan of the Company nor affect any benefits or compensation under any other
benefit or compensation plan of the Company now or subsequently in effect,
provided however that any Bonus Award paid in cash shall be considered
compensation for purposes of the Caraustar Industries, Inc. Defined Benefit
Pension Plan.

                                       20

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