10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from              to             

Commission File Number 0-20646

Caraustar Industries, Inc.

(Exact name of registrant as specified in its charter)

North Carolina	58-1388387
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

5000 Austell Powder Springs Road, Suite 300, Austell, Georgia	30106
(Address of principal executive offices)	(Zip Code)

(770) 948-3101

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨    Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  x

Indicate the number of shares outstanding of each of issuer’s classes of common stock, as of the latest practicable date, April 30, 2008.

Common Stock, $.10 par value	29,511,327
(Class)	(Outstanding)

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2008

CARAUSTAR INDUSTRIES, INC.

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited):	3
	Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007	3
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007	4
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
PART II — OTHER INFORMATION		32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 6.	Exhibits	32
Signatures		33
Exhibit Index		34

2

ITEM 1. Condensed Consolidated Financial Statements

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share data)

	March 31, 2008			December 31, 2007
Assets
Current assets:
Cash and cash equivalents	$	90		$	6,548
Receivables, net of allowances for doubtful accounts, returns, and discounts of $3,436 and $4,683 as of March 31, 2008 and December 31, 2007, respectively		82,732			74,207
Inventories		65,317			65,412
Refundable income taxes		20			104
Current deferred tax assets		5,273			5,841
Other current assets		9,098			7,061
Assets of discontinued operations held for sale		96			96
Total current assets		162,626			159,269
Property, plant and equipment:
Land		10,046			9,803
Buildings and improvements		82,053			83,685
Machinery and equipment		405,628			402,968
Furniture and fixtures		32,106			32,345
		529,833			528,801
Less accumulated depreciation		(291,918	)		(288,892	)
Property, plant and equipment, net		237,915			239,909
Goodwill		125,260			122,542
Investment in unconsolidated affiliate		38,032			39,117
Other assets		10,988			11,183
	$	574,821		$	572,020
Liabilities and Shareholders’ Equity
Current liabilities:
Current maturities of debt	$	5,830		$	5,830
Accounts payable		66,253			63,968
Accrued interest		5,834			1,773
Accrued compensation		7,869			9,828
Accrued pension		496			496
Capital lease obligations		28			72
Other accrued liabilities		16,231			20,913
Total current liabilities		102,541			102,880
Long-term debt, less current maturities		258,078			253,012
Long-term capital lease obligations		7			14
Deferred income taxes		34,154			34,082
Pension liability		25,391			27,980
Other liabilities		14,216			14,233
Shareholders’ equity:
Preferred stock, $.10 par value; 5,000,000 shares authorized, no shares issued		—			—
Common stock, $.10 par value; 60,000,000 shares authorized, 29,480,921 and 29,465,416 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively		2,948			2,947
Additional paid-in capital		193,469			192,978
Retained deficit		(34,964	)		(35,127	)
Accumulated other comprehensive (loss) income:
Unrecognized pension and other benefit liabilities		(22,351	)		(22,772	)
Foreign currency translation		1,332			1,793
Total accumulated other comprehensive loss		(21,019	)		(20,979	)
Total shareholders’ equity		140,434			139,819
	$	574,821		$	572,020

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except per share data)

	For the Three Months Ended March 31,
	2008			2007
Sales	$	216,502		$	219,425
Cost of goods sold		188,375			193,296
Selling, general and administrative expenses		24,436			28,578
Restructuring and impairment costs		722			5,786
Income (loss) from operations		2,969			(8,235	)
Other (expense) income:
Interest expense		(4,328	)		(4,650	)
Interest income		24			54
Equity in income of unconsolidated affiliate		1,915			159
Other, net		20			22
		(2,369	)		(4,415	)
Income (loss) from continuing operations before income taxes and minority interest		600			(12,650	)
(Provision) benefit for income taxes		(437	)		3,436
Income (loss) from continuing operations		163			(9,214	)
Discontinued operations:
Income from discontinued operations before income taxes		—			416
Provision for income taxes of discontinued operations		—			(146	)
Income from discontinued operations		—			270
Net income (loss)	$	163		$	(8,944	)
Other comprehensive income (loss):
Pension gains and losses, net of tax	$	421		$	—
Foreign currency translation adjustment		(461	)		56
Comprehensive income (loss)	$	123		$	(8,888	)
Basic income (loss) per common share:
Continuing operations	$	0.01		$	(0.32	)
Discontinued operations	$	—		$	0.01
Net income (loss)	$	0.01		$	(0.31	)
Weighted average number of shares outstanding		28,651			28,605
Diluted income (loss) per common share:
Continuing operations	$	0.01		$	(0.32	)
Discontinued operations	$	—		$	0.01
Net income (loss)	$	0.01		$	(0.31	)
Diluted weighted average number of shares outstanding		28,738			28,605

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

	For the Three Months Ended March 31,
	2008			2007
Operating activities:
Net income (loss)	$	163		$	(8,944	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		4,544			5,753
Equity-based compensation expense		438			380
Restructuring and impairment costs		562			937
Deferred income taxes		361			(3,414	)
Equity in income of unconsolidated affiliate		(1,915	)		(159	)
Distributions from unconsolidated affiliate		1,915			—
Changes in operating assets and liabilities, net of acquisitions		(9,786	)		(2,400	)
Net cash used in operating activities		(3,718	)		(7,847	)
Investing activities:
Purchases of property, plant and equipment		(3,934	)		(8,144	)
Proceeds from disposal of property, plant and equipment		61			684
Acquisition of businesses, net of cash acquired		(5,293	)		—
Changes in restricted cash		(23	)		(36	)
Return of investment in unconsolidated affiliates		1,085			—
Net cash used in investing activities		(8,104	)		(7,496	)
Financing activities:
Proceeds from senior credit facility-revolver		48,172			43,108
Repayments of senior credit facility-revolver		(41,298	)		(26,048	)
Repayments of senior credit facility – term loan		(1,459	)		(1,458	)
Payments for capital lease obligations		(51	)		(139	)
Issuances of stock, net of forfeitures		—			20
Net cash provided by financing activities		5,364			15,483
Net change in cash and cash equivalents		(6,458	)		140
Cash and cash equivalents at beginning of period		6,548			1,022
Cash and cash equivalents at end of period	$	90		$	1,162
Supplemental disclosures:
Cash payments for interest	$	679		$	874
Income tax payments, net	$	4		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Note 1. Basis of Presentation 

The financial information included herein is unaudited; however, such information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to present fairly, in all material respects, the financial position of Caraustar Industries, Inc. and its consolidated subsidiaries (“Company,” “us,” or “we”) as of March 31, 2008, and the results of operations for the three months ended March 31, 2008 and 2007, and the cash flows for the three months ended March 31, 2008 and 2007, respectively. The results of operations for the three months ended March 31, 2008 and the cash flows for the three months ended March 31, 2008 are not, and should not be, construed as necessarily indicative of the results of the operations or cash flows which may be reported for the remainder of 2008.

For the three months ended March 31, 2007, certain reclassifications of balances have been made between discontinued operations and continuing operations as a result of the Company’s sale of its composite container and plastics businesses during the third quarter of 2007.

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and regulations, certain footnote disclosures and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007. The accounting policies followed for interim financial reporting are the same as those disclosed in Note 1 of the notes to the financial statements included in the Company’s Form 10-K, except as noted below.

Note 2. New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of this statement are to be applied prospectively as of the beginning of the fiscal year in which this statement is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. The provisions of SFAS No. 157 are effective for the fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-2, which delays the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those years for all nonfinancial assets and nonfinancial liabilities, except those that are recognized at fair value in the financial statements on a recurring basis (at least annually). The adoption of SFAS 157 for the Company’s financial assets and financial liabilities did not have a material impact on its consolidated financial statements. The Company is evaluating the effect that implementation of SFAS 157 for its nonfinancial assets and nonfinancial liabilities will have on its financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115.” This pronouncement permits entities to use the fair value method to measure certain financial assets and liabilities by electing an irrevocable option to use the fair value method at specified election dates. After election of the option, subsequent changes in fair value would result in the recognition of unrealized gains or losses as period costs during the period the change occurred. The Company adopted SFAS 159 effective January 1, 2008. Upon adoption, the Company did not elect the fair value option for any items within the scope of SFAS 159 and, therefore, the adoption of SFAS 159 did not have an impact on its financial position or results of operations.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) requires the acquiring entity in a business combination to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. In addition, immediate expense recognition is required for transaction costs. SFAS 141(R) is effective for financial statements issued for fiscal years beginning after December 15, 2008, and adoption is prospective only. As such, if the Company enters into any business combinations after adoption of SFAS 141(R), a transaction may significantly affect the Company’s financial position and earnings, but, not cash flows, compared to the Company’s past acquisitions.

6

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 requires entities to report noncontrolling (minority) interest as a component of shareholders’ equity on the balance sheet; include all earnings of a consolidated subsidiary in consolidated results of operations; and treat all transactions between an entity and noncontrolling interest as equity transactions. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and adoption is prospective only; however, presentation and disclosure requirements must be applied retrospectively. The Company has not yet determined the effect, if any, SFAS 160 will have on its financial position or results of operations.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS 161”) SFAS 161 amends and expands the disclosure requirements of Statement 133 to provide a better understanding of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for, and their effect on an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years beginning after November 15, 2008. The Company has not yet determined the effect, if any, SFAS 161 will have on its financial position or results of operations.

Note 3. Acquisitions

Effective January 1, 2008, the Company acquired Mayers Fibre Tube & Core, located in Winnipeg, Manitoba, Canada, for approximately $5.3 million. Mayers is a manufacturer of construction tubes, waxed void tubes, paper cores, plastic test cylinder molds, paper mailing tubes and metal end containers. The Company allocated approximately $2.2 million of the purchase price to current assets, $0.6 million to fixed assets, $0.3 million to current liabilities and $2.8 million to goodwill.

Note 4. Accounting for Stock-Based Compensation

The Company accounts for its stock-based compensation plans pursuant to SFAS No. 123(R), “Share-Based Payment” (“SFAS 123R”) which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). SFAS 123R supersedes Accounting Principles Board Statement No. 25, “Accounting for Stock Issued to Employees,” (“APB 25”) and amends SFAS No. 95, “Statement of Cash Flows.” SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations based on their fair values.

In May 2003, the Company’s board of directors and shareholders approved a long-term equity incentive plan, which became effective May 7, 2003. Under the provisions of the plan, participating key employees are rewarded, in the form of common share purchase options, non-vested performance accelerated restricted shares (“PARS”), non-vested Restricted Service Awards, non-vested Restricted Performance Awards, or a combination of any or all of them, for improving the Company’s financial performance in a manner that is consistent with the creation of increased shareholder value. All options awarded under the plan will have an exercise price not less than 100% of the fair market value of a share of common stock on the date of grant. Options will have a vesting schedule of up to five years and expire after ten years. The PARS issued by the Company will vest seven years from the date of grant unless vesting is accelerated when the price of Company stock meets a specific target price and trades at that price or higher for twenty consecutive trading days. The Restricted Service Awards issued by the Company will vest 50% two years from the date of grant and 100% three years from the date of grant. The Restricted Performance Awards vest based on the achievement of financial targets based on cumulative Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) over a three year (2007-2009) performance period. In May 2003 the Company’s board of directors authorized and shareholders approved an aggregate of 4.0 million common shares for issuance under this plan. The Company’s policy for issuing shares upon an exercise of options is to issue new shares.

In May 2005, the shareholders approved an amendment to allow the Company’s directors to participate in the long-term equity incentive plan. Under this plan, each non-employee director of the Company is granted 3.0 thousand options annually.

7

There were no options granted during the three months ended March 31, 2008 and 2007. The Company recorded compensation expense of approximately $140 thousand and $163 thousand for the three months ended March 31, 2008 and 2007, respectively, related to all options. The amount reported for the three months ended March 31, 2007 included approximately $106 thousand of compensation expense related to options issued in December 2006. No options were exercised during the three months ended March 31, 2008 and 3,000 options were exercised during the three months ended March 31, 2007. The total intrinsic value of the 3,000 options exercised during the three months ended March 31, 2007, was insignificant. As of March 31, 2008, there was approximately $1.2 million of total unrecognized compensation cost related to non-vested stock options. The unrecognized cost is expected to be expensed over a weighted-average period of 5.2 years using the straight-line method.

During the three months ended March 31, 2008, the Company granted 4,500 PARS at the weighted-average grant date fair value price of $2.78 per share. There was no nonvested stock granted during the three months ended March 31, 2007. No nonvested stock vested during the three months ended March, 2008 and 2007. The Company recorded approximately $298 thousand and $217 thousand of compensation expense during the three months ended March 31, 2008 and 2007, respectively, related to all non-vested stock. As of March 31, 2008, there was approximately $4.1 million of total unrecognized compensation cost related to all non-vested stock. The unrecognized cost is expected to be expensed, using the straight-line method, over a weighted-average period of 3.5 years, unless specific performance targets are achieved, at which time the non-vested stock will vest and be expensed during the period the targets are achieved.

Total compensation expense for all non-vested stock and stock options for the three months ended March 31, 2008 and 2007 included in the Company’s results of operations was $438 thousand and $380 thousand, respectively. The Company recognized no windfall tax benefit for the three months ended March 31, 2008 and 2007.

The following table summarizes the stock option activity during the three months ended March 31, 2008:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Life (In Years)	Aggregate Intrinsic Value (1) (in thousands)
Outstanding at December 31, 2007	2,090,645		$	13.58
Granted	—			—
Forfeited	(23,537	)		12.61
Exercised	—			—
Outstanding at March 31, 2008	2,067,108		$	13.59	5.2	$	—
Vested and expected to vest as of March 31, 2008	2,053,865		$	13.62	5.2	$	—
Options exercisable as of March 31, 2008	1,522,269		$	16.57	3.8	$	—

(1) These amounts represent the difference between the weighted average exercise price and $1.35, the closing price of Caraustar stock on March 31, 2008 (the closing price closest to the last day of the quarter) as reported on the NASDAQ Stock Market, for all the in-the-money options outstanding.

A summary of the status of Caraustar’s non-vested stock as of March 31, 2008, and changes during the three months ended March 31, 2008, is presented below:

	Shares		Weighted- Average Grant- Date Fair Value
Non-vested at December 31, 2007	831,939		$	9.26
Granted	4,500			2.78
Vested	—			—
Forfeited	(6,750	)		7.23
Non-vested at March 31, 2008	829,689		$	9.24

8

The fair market value of the stock options at the date of the grant was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

	March 31, 2008	March 31, 2007
Risk-free interest rate	N/A	N/A
Expected dividend yield	N/A	N/A
Expected life of options	N/A	N/A
Expected volatility	N/A	N/A

The risk-free interest rate is based on U.S. Treasury interest rates whose term is consistent with the expected life of the stock options. Expected volatility and expected life are based on the Company’s historical experience. Expected dividend yield was not considered in the option pricing formula since our debt agreements contain limitations on the payment of dividends and currently preclude the Company from doing so. As required by SFAS 123R, the Company will adjust the estimated forfeiture rate based upon actual experience.

Note 5. Inventory

Inventories are carried at the lower of cost or market. The costs included in inventory include raw materials (recovered fiber for paperboard products and paperboard for converted products), direct and indirect labor and employee benefits, energy and fuel, depreciation, chemicals, general manufacturing overhead, and various other costs of manufacturing. General and administrative costs are not included in inventory costs.

Market, with respect to all inventories, is replacement cost or net realizable value. The Company reviews inventory at least quarterly to determine the necessity of write-offs for excess, obsolete or unsaleable inventory. The Company estimates reserves for inventory obsolescence and shrinkage based on management’s judgment of future realization. These reviews require management to assess customer and market demand. All inventories are valued using the first-in, first-out method.

Inventories at March 31, 2008 and December 31, 2007, were as follows (in thousands):

	March 31, 2008		December 31, 2007
Raw materials and supplies	$	27,311	$	28,079
Finished goods and work in process		38,006		37,333
Total inventory	$	65,317	$	65,412

Note 6. Discontinued Operations and Assets Held for Sale

Discontinued Operations

On October 2, 2007, the Company completed the sale of the assets associated with its composite container and plastics businesses. These businesses were a component of the tube, core and composite container segment and consisted of six facilities located in Covington, Georgia; Orrville, Ohio; St. Paris, Ohio; Stevens Point, Wisconsin; New Smyrna Beach, Florida and Union, South Carolina.

For all periods presented in the accompanying consolidated statements of operations, discontinued operations include the results of operations and losses associated with the divestitures of the composite container and plastics operations.

9

Operating Results Data

There were no discontinued operations for the three months ended March 31, 2008. The following table shows the results of discontinued operations for the three months ended March 31, 2007 (in thousands).

	Three Months Ended March 31, 2007
Sales	$	13,320
Cost of sales		12,041
Selling, general and administrative expenses		855
Restructuring and impairment costs		2
Income from operations		422
Other income (expense), net		(6	)
Income from discontinued operations before income taxes		416
Provision for income taxes		(146	)
Income from discontinued operations	$	270

On October 2, 2007, the Company completed the sale of its composite container and plastics businesses to the Sonoco Products Company for a net purchase price of approximately $20.2 million. The Company recorded a loss of approximately $10.3 million associated with this divestiture which is recorded in restructuring and impairment costs of discontinued operations. Included in this amount is the write-off of approximately $5.0 million of related goodwill.

Note 7. Senior Credit Facility and Long-Term Debt

At March 31, 2008 and December 31, 2007, total long-term debt consisted of the following (in thousands):

	March 31, 2008			December 31, 2007
Senior credit facility - revolver	$	17,213		$	10,339
Senior credit facility - term loan		18,589			20,048
7 3/8% senior notes		189,750			189,750
7 1/4% senior notes		29,000			29,000
Other notes payable		8,200			8,200
Realized interest rate swap agreements (1)		1,156			1,505
Total debt		263,908			258,842
Less current maturities		(5,830	)		(5,830	)
Total long-term debt	$	258,078		$	253,012

(1) Consists of realized interest rate swap gains less the original issuance discounts and accumulated discount amortization related to the senior notes.

The carrying value of total debt outstanding at March 31, 2008 maturing during the next five years and thereafter is as follows (in thousands):

2008	$	4,375
2009		197,900
2010		33,672
2011		19,761
2012		3,500
Thereafter		4,700
Total debt	$	263,908

10

Senior Credit Facility

On March 30, 2006, the Company amended its Senior Credit Facility by entering into an Amended and Restated Credit Agreement. The agreement provided for a $145.0 million senior secured credit facility (the “Senior Credit Facility”) consisting of a $110.0 million five-year revolver and a $35.0 million five-year term loan. The five-year revolver was reduced from $110.0 million to $100.0 million in October 2006. On May 14, 2007, the Company amended its Senior Credit Facility which impacted the calculation of the availability under the Senior Credit Facility and changed the applicable margins in the pricing grid which is discussed in more detail below. The Senior Credit Facility is secured by substantially all of the assets of the Company and its domestic subsidiaries other than real property, including accounts receivable, general intangibles, inventory, and equipment. These subsidiaries are parties to the Senior Credit Facility either as co-borrowers with the Company or as guarantors. At March 31, 2008, the Company had $18.6 million outstanding under the five-year term loan and $17.2 million outstanding under the revolver.

The revolver matures on March 30, 2011 and includes a sublimit of $25.0 million for letters of credit. Borrowing availability under the revolver is determined by reference to a borrowing base, defined as specified percentages of eligible accounts receivable and inventory and reduced by usage of the revolver, including outstanding letters of credit, and any reserves. Aggregate availability under the revolver was $27.0 million at March 31, 2008. The term loan was drawn in full at closing and is required to be repaid in monthly installments based on a level six-year amortization schedule, with all remaining outstanding principal due on March 30, 2011.

Outstanding principal of the term loan initially bears interest at a rate equal to, at the Company’s option, either (1) the base rate (which is the prime rate most recently announced by Bank of America, N.A., the administrative agent under the Senior Credit Facility) plus 0.50%, or (2) the adjusted one, two, three, or six-month LIBOR rate plus 2.00%. Outstanding principal under the revolver initially bears interest at a rate equal to, at the Company’s option, either (1) the base rate plus .25% or (2) the adjusted one, two, three, or six-month LIBOR rate plus 1.75%. Pricing under the Senior Credit Facility is determined by reference to a pricing grid under which margins shall be adjusted prospectively on a quarterly basis as determined by the average availability and fixed charge coverage ratio measured as of the last day of each fiscal quarter, commencing with the fiscal quarter ending June 30, 2007. Under the pricing grid, the applicable margins for the term loan range from 0.0% to 1.0% for base rate loans and from 1.50% to 2.50% for LIBOR loans, and the applicable margins for the revolver range from 0.0% to 0.75% for base rate loans and from 1.25% to 2.25% for LIBOR loans. The undrawn portion of the revolver is subject to an unused line fee calculated at an annual rate of 0.25%. Outstanding letters of credit are subject to an annual fee equal to the applicable margin for LIBOR loans under the revolver as in effect from time to time, plus a fronting fee on the undrawn amount thereof at an annual rate of 0.125%. The actual rates in effect at March 31, 2008 were 4.90% and 5.15% for outstanding revolver and term loan borrowings, respectively.

The Senior Credit Facility contains covenants that restrict, among other things, the ability of the Company and its subsidiaries to create liens, merge or consolidate, dispose of assets, incur indebtedness and guarantees, pay dividends, repurchase or redeem capital stock and indebtedness, make certain investments or acquisitions, enter into certain transactions with affiliates, enter into sale and leaseback transactions, or change the nature of their business. The Senior Credit Facility contains no financial maintenance covenants at this time; however, the Company must maintain a $15.0 million “Minimum Availability Reserve” at all times. The availability disclosed is net of this reserve. There is a one-time option to convert to a springing covenant financial structure where the $15.0 million “Minimum Availability Reserve” would be eliminated; however, a fixed charge ratio would be tested in the event borrowing availability falls below $20.0 million. Currently, the Company would not meet the fixed charge coverage ratio and, therefore, does not anticipate exercising this option. The Senior Credit Facility contains events of default including, but not limited to, nonpayment of principal or interest, violation of covenants, breaches of representations and warranties, cross-default to other indebtedness, bankruptcy and other insolvency events, material judgments, certain ERISA events, actual or asserted invalidity of loan documentation, and certain changes of control of the Company.

The Company was in compliance with the Senior Credit Facility covenants as of March 31, 2008.

Senior and Senior Subordinated Notes

On June 1, 1999, the Company issued $200.0 million in aggregate principal amount of 7 ³/8% senior notes due June 1, 2009. The 7 ³/8% senior notes were issued at a discount to yield an effective annualized interest rate of 7.47% and pay interest semiannually. After taking into account realized gains from unwinding various interest rate swap agreements, the current effective annualized interest rate of the 7 ³/8% senior notes is 6.3%. The 7 ³/8% senior notes are unsecured obligations of the Company. As of March 31, 2008, the Company has purchased an aggregate of $10.3 million of these notes in the open market.

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On March 29, 2001, the Company issued $285.0 million of 9 ⁷/8% senior subordinated notes due April 1, 2011 and $29.0 million of 7¹/4% senior notes due May 1, 2010. These senior subordinated notes and senior notes were issued at a discount to yield effective interest rates of 10.5% and 9.4%, respectively. The publicly traded senior subordinated notes were, and the senior notes are, unsecured but guaranteed, on a joint and several basis, by all but one of the Company’s wholly-owned domestic subsidiaries. The senior subordinated notes included a redemption provision which allowed the Company to redeem all or part of the outstanding notes at 105.25% on/or after April 1, 2006.

Note 8. Segment Information

The Company operates principally in four business segments organized by products. The paperboard segment consists of facilities that manufacture 100% recycled uncoated paperboard and one facility that manufactures clay-coated recycled paperboard. The recovered fiber segment consists of facilities that collect and sell recycled paper and broker recycled paper and other paper rolls. The tube and core segment is principally made up of facilities that produce spiral and convolute-wound tubes and cores. The folding carton segment consists of facilities that produce printed and unprinted folding cartons and set-up boxes. Intersegment sales are recorded at prices which approximate market prices.

Operating results include all costs and expenses directly related to the segment involved. Corporate expenses include corporate, general, administrative, and unallocated information systems expenses.

The following table presents certain business segment information for the periods indicated (in thousands):

	Three Months Ended March 31,
	2008			2007
Sales (external customers):
Paperboard	$	54,949		$	52,886
Recovered fiber		31,990			38,098
Tube and core		72,529			72,023
Folding carton		57,034			56,418
Total	$	216,502		$	219,425
Sales (intersegment):
Paperboard	$	33,649		$	33,158
Recovered fiber		24,351			22,448
Tube and core		1,026			1,227
Folding carton		45			193
Total	$	59,071		$	57,026
Income (loss) from continuing operations:
Paperboard (A)	$	4,579		$	(1,364	)
Recovered fiber (B)		3,048			1,416
Tube and core (C)		1,689			1,471
Folding carton (D)		1,924			(2,061	)
Total		11,240			(538	)
Corporate expense		(8,271	)		(7,697	)
Income (loss) from continuing operations		2,969			(8,235	)
Interest expense		(4,328	)		(4,650	)
Interest income		24			54
Equity in income of unconsolidated affiliates		1,915			159
Other, net		20			22
Income (loss) from continuing operations before income taxes and minority interest	$	600		$	(12,650	)

(A) Results for the three months ended March 31, 2008 and 2007 include gains recorded to operations and charges to operations of $0.2 million and $3.8 million, respectively, for restructuring and impairment costs. These costs relate primarily to the closing and consolidating of operations and the disposition of machinery and equipment.

(B) Results for the three months ended March 31, 2008 and 2007 include gains recorded to operations of $39 thousand and $4 thousand, respectively. These gains relate primarily to the disposition of machinery and equipment that was held for sale.

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(C) Results for the three months ended March 31, 2008 and 2007 include charges to operations of $25 thousand and $700 thousand, respectively, for restructuring and impairment costs. These costs relate primarily to closing and consolidating operations and settlement of leases.

(D) Results for the three months ended March 31, 2008 and 2007 include charges to operations of $300 thousand and $1.4 million, respectively, for restructuring and impairment costs. These costs relate primarily to closing and consolidating operations and the disposition of machinery and equipment.

Note 9. Goodwill and Other Intangible Assets

Goodwill

The Company accounts for goodwill and other intangible assets pursuant to SFAS No. 142, “Goodwill and Other Intangible Assets.” Under this pronouncement, the Company performs an impairment test at least annually. The Company’s most recent impairment test was performed during the fourth quarter of 2007 and did not result in an impairment charge. During the third quarter of 2007 the Company recognized a $5.0 million write-off of goodwill in the tube and core segment related to the divestiture of the segment’s composite container and plastics businesses. This impairment was recorded in discontinued operations. During the first quarter of 2008, the Company acquired Mayers Fibre Tube & Core, located in Winnipeg, Manitoba, Canada, and allocated approximately $2.8 million of the purchase price to goodwill.

The following is a summary of the changes in the carrying amount of goodwill, by segment, for the three months ended March 31, 2008 (in thousands):

	Paperboard		Recovered Fiber		Folding Carton	Tube & Core			Total
Balance as of December 31, 2007	$	68,396	$	3,777	—	$	50,369		$	122,542
Goodwill acquired		—		—	—		2,779			2,779
Foreign currency translation adjustments		—		—	—		(61	)		(61	)
Balance as of March 31, 2008	$	68,396	$	3,777	—	$	53,087		$	125,260

Intangible Assets

As of March 31, 2008 and December 31, 2007, the Company had an intangible asset of $4.9 million (net of $3.2 million of accumulated amortization) and $5.0 million (net of $3.0 million of accumulated amortization), respectively, which was classified with other assets. Amortization expense for each of the three month periods ended March 31, 2008 and 2007 was $128 thousand. The intangible asset is associated with the acquisition of certain assets of the Smurfit Industrial Packaging Group, which acquisition was completed in 2002, and is attributable to the acquired customer relationships. This intangible asset is being amortized over 15 years. Scheduled amortization of the intangible asset for the next five years is as follows (in thousands):

2008	$	511
2009		511
2010		511
2011		511
2012		511
Five year total	$	2,555

Note 10. Restructuring and Impairment Costs

Restructuring has been a primary component of management’s strategy to address the decrease in demand for products and excess industry capacity. In response to these factors, over the past several years the Company has closed and consolidated facilities within all of its four business segments. These initiatives are designed to enhance the Company’s competitiveness by reducing costs, reducing geographic overlap, and minimizing duplicative capabilities.

At December 31, 2007, a $3.4 million accrual remained for severance and other termination benefits, and a $2.1 million accrual remained for other exit costs related to restructuring activities. During the first quarter of 2008, the Company incurred an expense of $562 thousand on the disposal of fixed assets. The Company also benefited from a $496 thousand reversal of a previous accrual for severance and other termination benefits and incurred expenses of $88 thousand of severance and other termination

13

benefits and $568 thousand of other exit costs. The Company paid $254 thousand in severance and other termination benefits and paid $618 thousand for other exit costs in the first quarter of 2008, leaving an accrual of $4.8 million at March 31, 2008. As of March 31, 2008 these plans are substantially complete and will be finalized upon the sale of real estate associated with the closed facilities.

The following is a summary of restructuring and impairment costs and the restructuring liability from December 31, 2007 to March 31, 2008 (in thousands):

	Asset Impairment Charges and Loss on Disposals		Severance and Other Termination Benefits Costs			Other Exit Costs			Restructuring Liability Total			Total (1)
Liability balance, December 31, 2007			$	3,398		$	2,104		$	5,502
First quarter 2008 costs	$	562		(408	)		568			160		$	722
Expenditures				(254	)		(618	)		(872	)
Liability balance, March 31, 2008			$	2,736		$	2,054		$	4,790

(1) Asset impairment charges and loss on disposals, severance and other termination benefit costs, and other exit costs are aggregated and reported as restructuring and impairment costs on the statement of operations.

The following table summarizes restructuring and impairment costs by segment for those plans initiated, but not completed as of March 31, 2008, and accounted for under SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (in thousands):

Segment	Cumulative Costs as of March 31, 2008		Estimated Costs to Complete Initiatives as of March 31, 2008		Total Estimated Costs of Initiatives as of March 31, 2008
Paperboard	$	19,539	$	1,339	$	20,878
Folding carton		13,747		680		14,427
Tube and core		580		61		641
Total	$	33,866	$	2,080	$	35,946

Note 11. Pension Plan and Other Postretirement Benefits

Pension Plan and Supplemental Executive Retirement Plan

Substantially all of the Company’s employees hired prior to December 31, 2004 participate in a noncontributory defined benefit pension plan (the “Pension Plan”). The Pension Plan requires benefits to be paid to all eligible employees at retirement, based primarily on years of service with the Company and compensation rates in effect near retirement. The Pension Plan’s assets consist of shares held in collective investment funds and group annuity contracts. The Company’s policy is to fund benefits attributed to employees’ service to date, as well as service expected to be earned in the future. Based on current estimates, contributions of approximately $8.7 million are expected to be made during 2008. During the three months ended March 31, 2008, the Company made contributions of $3.1 million to the Pension Plan.

Certain executives participate in a supplemental executive restoration plan (“SERP”), which provides enhanced retirement benefits to participants based on average compensation. The SERP is unfunded at March 31, 2008.

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Pension expense for the Pension Plan and the SERP includes the following components for the three months ended March 31, 2008 and 2007 (in thousands):

	Pension Plan						SERP
	Three Months Ended March 31,						Three Months Ended March 31,
	2008			2007			2008		2007
Service cost of benefits earned	$	642		$	711		$	82	$	83
Interest cost on projected benefit obligation		1,922			1,741			145		130
Estimated return on plan assets		(2,191	)		(1,804	)		—		—
Net amortization and deferral		600			1,157			64		84
Net pension expense	$	973		$	1,805		$	291	$	297

Other Postretirement Benefits

The Company provides postretirement medical benefits to retired employees of certain of its subsidiaries. The Company accounts for these postretirement medical benefits in accordance with SFAS No. 106, “Employer’s Accounting for Postretirement Benefits Other than Pensions.”

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Net periodic postretirement benefit cost for the three months ended March 31, 2008 and 2007 includes the following components (in thousands):

	Three Months Ended March 31,
	2008		2007
Service cost of benefits earned	$	6	$	10
Interest cost on accumulated postretirement benefit obligation		73		86
Amortization		12		59
Net postretirement benefit cost	$	91	$	155

Note 12. Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires the use of the liability method of accounting for deferred income taxes. Effective January 1, 2007, the Company implemented FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes (an interpretation of FASB Statement No. 109)” (“FIN 48”). FIN 48 was issued to clarify the accounting for uncertainty in income taxes recognized in the financial statements by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

As of March 31, 2008 and December 31, 2007, the Company had $14.0 million and $13.8 million of unrecognized tax benefits, of which $4.6 million and $4.6 million, respectively, would affect the annual effective tax rate if recognized. The difference between the gross amount of unrecognized tax benefits and the portion that would affect the effective tax rate is attributable to items that would be offset by existing valuation allowance and the federal tax benefit related to state tax items.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the income tax provision. As of March 31, 2008 and December 31, 2007, accrued interest and penalties related to unrecognized tax benefits were $692 thousand and $667 thousand, respectively.

The effective rate of income tax for continuing operations for the three months ended March 31, 2008 was a 72.8% expense, compared with a 27.2% benefit for the same period last year. The effective rates are different from the statutory rates due to permanent tax adjustments, the inability of the Company to record the tax benefits of losses in certain state and foreign jurisdictions, the write-off of goodwill with no tax basis, and changes in the estimated state income tax rates.

The Company and its subsidiaries file U.S. federal income tax returns and returns for various U.S. states and foreign jurisdictions. For federal purposes, the years that remain subject to examination by the IRS include tax years 2001 through 2007. For state purposes, the years that remain subject to examination by state authorities include tax years 2000 through 2007. The Company is currently under audit by the State of Illinois for tax years 2003 through 2005 and the State of New York for tax years 2001 through 2003. No material adjustments are expected to result from either audit.

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Note 13. Income Per Share

The following is a reconciliation of the numerators and denominators of the basic and diluted income (loss) per share computations for net income (loss) from continuing operations (in thousands, except per share information):

	Three Months Ended March 31,
	2008		2007
Income (loss) from continuing operations	$	163	$	(9,214	)
Weighted average number of common shares outstanding - basic		28,651		28,605
Common share equivalents		87		—
Weighted average number of common shares outstanding - diluted		28,738		28,605
Basic income (loss) per share from continuing operations	$	0.01	$	(0.32	)
Diluted income (loss) per share from continuing operations	$	0.01	$	(0.32	)

The impact of the dilutive effect of common share equivalents has been included in periods with net income. The number of anti-dilutive common share equivalents not included in the computation of diluted weighted average shares for the three months ended March 31, 2008 and 2007 was 2,067,108 and 1,568,808, respectively.

Note 14. Equity Interests in Unconsolidated Affiliate

The Company owns 50% of Premier Boxboard Limited (“PBL”). PBL is a joint venture with Temple-Inland, which owns the remaining 50% interest, and is accounted for under the equity method. PBL produces lightweight gypsum facing paper along with containerboard grades and is managed by the Company. Because of the significance of PBL’s operating results to the Company, PBL’s summarized balance sheets and income statements are presented below (in thousands):

	March 31, 2008		December 31, 2007
Current assets	$	19,684	$	19,571
Noncurrent assets		120,158		121,943
Current liabilities		13,470		12,761
Long-term liabilities		267		501
Long-term debt		50,000		50,000
Net assets		76,105		78,252

	Three Months Ended March 31,
	2008		2007
Sales	$	35,433	$	28,815
Gross profit		7,365		3,645
Income from operations		4,859		1,198
Net income		3,830		292

The Company received $3.0 million in cash distributions from PBL during the three months ended March 31, 2008. The Company’s equity interest in earnings from PBL for the three months ended March 31, 2008 and 2007 was approximately $1.9 million and $146 thousand, respectively.

See discussion of PBL’s debt and related obligations in the notes to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

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Note 15. Fair Value Measurements

On January 1, 2008, the Company adopted the provisions of SFAS No. 157. In February 2008, the FASB issued a final Staff Position to allow a one-year deferral of adoption of SFAS 157 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The Company has elected this one-year deferral and thus will not apply the provisions of SFAS 157 to nonfinancial assets and nonfinancial liabilities that are recognized at fair value in the financial statements on a nonrecurring basis until our fiscal year beginning January 1, 2009. The Company is in the process of evaluating the impact of applying SFAS 157 to nonfinancial assets and liabilities measured on a nonrecurring basis. The FASB also amended SFAS 157 to exclude FASB Statement No. 13 and its related interpretive accounting pronouncements that address leasing transactions. SFAS 157 enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. SFAS 157 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The fair value of the Company’s restricted cash is based on quoted prices in active markets for identical assets. The Company generally applies fair value techniques on a non-recurring basis associated with, (1) valuing potential impairment loss related to goodwill and indefinite-lived intangible assets accounted for pursuant to SFAS No. 142, and (2) valuing potential impairment loss related to long-lived assets accounted for pursuant to SFAS No. 144.

The following table summarizes the carrying amounts and fair values of certain assets at March 31, 2008 (in thousands):

	Carrying Amount		Quoted Prices In Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Observable Inputs (Level 3)
Restricted cash	$	3,986	$	3,986	$	—	$	—

The following table sets forth the fair values and carrying amounts of the Company’s significant financial instruments as of March 31, 2008 where the carrying amount differs from the fair value. The carrying amount of cash and cash equivalents, short-term debt and long-term variable-rate debt approximates fair value. The fair value of long-term debt is based on quoted market prices (in thousands).

	Fair Value		Carrying Amount
7 1/4% Senior Notes	$	16,530	$	27,839
7 3/8% Senior Notes		128,081		192,067
	$	144,611	$	219,906

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Note 16. Guarantor Condensed Consolidating Financial Statements

These condensed consolidating financial statements reflect Caraustar Industries, Inc. and its subsidiary guarantors, which consist of all but one of the Company’s wholly-owned subsidiaries other than foreign subsidiaries (“Subsidiary Guarantors”). Nonguarantor subsidiaries are herein referred to as “Nonguarantor Subsidiaries.” Separate financial statements of the Subsidiary Guarantors are not presented because the subsidiary guarantees are joint and several and full and unconditional, and the Company believes that the condensed consolidating financial statements presented are more meaningful in understanding the financial position of the Subsidiary Guarantors.

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING BALANCE SHEETS

(In thousands)

	As of March 31, 2008
	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	90		$	—		$	—		$	90
Intercompany funding		(230,227	)		231,579			(1,352	)		—			—
Receivables, net of allowances		161			78,487			4,084			—			82,732
Inventories		—			63,363			1,954			—			65,317
Refundable income taxes		20			—			—			—			20
Current deferred tax assets		5,273			—			—			—			5,273
Other current assets		7,039			2,059			—			—			9,098
Assets of discontinued operations held for sale		96			—			—			—			96
Total current assets		(217,638	)		375,578			4,686			—			162,626
Property, plant and equipment		31,160			492,782			5,891			—			529,833
Less accumulated depreciation		(14,124	)		(276,423	)		(1,371	)		—			(291,918	)
Property, plant and equipment, net		17,036			216,359			4,520			—			237,915
Goodwill		—			119,040			6,220			—			125,260
Investment in consolidated subsidiaries		627,435			—			—			(627,435	)		—
Investment in unconsolidated affiliate		38,032			—			—			—			38,032
Other assets		5,300			5,688			—			—			10,988
	$	470,165		$	716,665		$	15,426		$	(627,435	)	$	574,821
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt	$	5,830		$	—		$	—		$	—		$	5,830
Accounts payable		12,010			52,635			1,608			—			66,253
Accrued interest		5,701			133			—			—			5,834
Accrued compensation		537			7,068			264			—			7,869
Accrued pension		496			—			—			—			496
Capital lease obligations		—			28			—			—			28
Other accrued liabilities		4,050			12,102			79			—			16,231
Total current liabilities		28,624			71,966			1,951			—			102,541
Long-term debt, less current maturities		249,878			8,200			—			—			258,078
Long-term capital lease obligations		—			7			—			—			7
Deferred income taxes		20,450			12,164			1,540			—			34,154
Pension liability		25,391			—			—			—			25,391
Other liabilities		5,388			8,828			—			—			14,216
Shareholders’ equity:
Common stock		2,948			772			497			(1,269	)		2,948
Additional paid-in capital		193,469			550,830			13,632			(564,462	)		193,469
Retained (deficit) earnings		(34,964	)		63,898			(3,526	)		(60,372	)		(34,964	)
Accumulated other comprehensive (loss) income		(21,019	)		—			1,332			(1,332	)		(21,019	)
Total shareholders’ equity		140,434			615,500			11,935			(627,435	)		140,434
	$	470,165		$	716,665		$	15,426		$	(627,435	)	$	574,821

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CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING BALANCE SHEETS

(In thousands)

	As of December 31, 2007
	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	316		$	5,734		$	498		$	—		$	6,548
Intercompany funding		(231,322	)		233,346			(2,024	)		—			—
Receivables, net of allowances		161			71,408			2,638			—			74,207
Inventories		—			64,469			943			—			65,412
Refundable income taxes		104			—			—			—			104
Current deferred tax assets		5,841			—			—			—			5,841
Other current assets		3,166			3,895			—			—			7,061
Assets of discontinued operations held for sale		96			—			—			—			96
Total current assets		(221,638	)		378,852			2,055			—			159,269
Property, plant and equipment		34,305			488,769			5,727			—			528,801
Less accumulated depreciation		(14,932	)		(272,802	)		(1,158	)		—			(288,892	)
Property, plant and equipment, net		19,373			215,967			4,569			—			239,909
Goodwill		—			119,040			3,502			—			122,542
Investment in consolidated subsidiaries		610,689			—			—			(610,689	)		—
Investment in unconsolidated affiliate		39,117			—			—			—			39,117
Other assets		5,300			5,883			—			—			11,183
	$	452,841		$	719,742		$	10,126		$	(610,689	)	$	572,020
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt	$	5,830		$	—		$	—		$	—		$	5,830
Accounts payable		1,848			60,812			1,308			—			63,968
Accrued interest		1,707			66			—			—			1,773
Accrued compensation		1,238			8,443			147			—			9,828
Accrued pension		496			—			—			—			496
Capital lease obligations		44			28			—			—			72
Other accrued liabilities		3,333			17,417			163			—			20,913
Total current liabilities		14,496			86,766			1,618			—			102,880
Long-term debt, less current maturities		244,812			8,200			—			—			253,012
Long-term capital lease obligations		—			14			—			—			14
Deferred income taxes		20,364			12,186			1,532			—			34,082
Pension liability		27,980			—			—			—			27,980
Other liabilities		5,370			8,863			—			—			14,233
Shareholders’ equity:
Common stock		2,947			772			497			(1,269	)		2,947
Additional paid-in capital		192,978			550,830			8,339			(559,169	)		192,978
Retained (deficit) earnings		(35,127	)		52,111			(3,653	)		(48,458	)		(35,127	)
Accumulated other comprehensive (loss) income		(20,979	)		—			1,793			(1,793	)		(20,979	)
Total shareholders’ equity		139,819			603,713			6,976			(610,689	)		139,819
	$	452,841		$	719,742		$	10,126		$	(610,689	)	$	572,020

20

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENTS OF OPERATIONS

(In thousands)

	For the Three Months Ended March 31, 2008
	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries		Eliminations			Consolidated
Sales	$	—		$	276,681		$	7,586	$	(67,765	)	$	216,502
Cost of sales		—			249,092			7,048		(67,765	)		188,375
Selling, general and administrative expenses		8,564			15,408			464		—			24,436
Restructuring and impairment costs		453			269			—		—			722
(Loss) income from operations		(9,017	)		11,912			74		—			2,969
Other (expense) income:
Interest expense		(4,236	)		(92	)		—		—			(4,328	)
Interest income		24			—			—		—			24
Equity in income of consolidated affiliate		11,914			—			—		(11,914	)		—
Equity in income of unconsolidated affiliate		1,915			—			—		—			1,915
Other, net		—			(33	)		53		—			20
		9,617			(125	)		53		(11,914	)		(2,369	)
Income (loss) from continuing operations before income taxes and minority interest		600			11,787			127		(11,914	)		600
Provision for income taxes		(437	)		—			—		—			(437	)
Income (loss) from continuing operations		163			11,787			127		(11,914	)		163
Discontinued operations:
Loss from discontinued operations before income taxes		—			—			—		—			—
Benefit for income taxes of discontinued operations		—			—			—		—			—
Loss from discontinued operations		—			—			—		—			—
Net Income (loss)	$	163		$	11,787		$	127	$	(11,914	)	$	163

21

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENTS OF OPERATIONS

(In thousands)

	For the Three Months Ended March 31, 2007
	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Sales	$	—		$	277,631		$	4,972		$	(63,178	)	$	219,425
Cost of sales		—			251,723			4,751			(63,178	)		193,296
Selling, general and administrative expenses		7,930			20,103			545			—			28,578
Restructuring and impairment costs		9			5,487			290			—			5,786
(Loss) income from operations		(7,939	)		318			(614	)		—			(8,235	)
Other (expense) income:
Interest expense		(4,549	)		(101	)		—			—			(4,650	)
Interest income		54			—			—			—			54
Equity in income of consolidated affiliate		41			—			—			(41	)		—
Equity in income of unconsolidated affiliate		159			—			—			—			159
Other, net		—			(27	)		49			—			22
		(4,295	)		(128	)		49			(41	)		(4,415	)
(Loss) income from continuing operations before income taxes and minority interest		(12,234	)		190			(565	)		(41	)		(12,650	)
Benefit for income taxes		3,436			—			—			—			3,436
(Loss) income from continuing operations		(8,798	)		190			(565	)		(41	)		(9,214	)
Discontinued operations:
Income (loss) from discontinued operations before income taxes		—			438			(22	)		—			416
Benefit for income taxes of discontinued operations		—			(154	)		8			—			(146	)
Income (loss) from discontinued operations		—			284			(14	)		—			270
Net (loss) income	$	(8,798	)	$	474		$	(579	)	$	(41	)	$	(8,944	)

22

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENTS OF CASH FLOWS

(In thousands)

	For the Three Months Ended March 31, 2008
	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	(6,463	)	$	(2,050	)	$	4,795		$	—	$	(3,718	)
Investing activities:
Purchases of property, plant and equipment		(279	)		(3,655	)		—			—		(3,934	)
Proceeds from disposal of property, plant and equipment		—			61			—			—		61
Changes in restricted cash		(23	)		—			—			—		(23	)
Return of investment in unconsolidated affiliate		1,085			—			—			—		1,085
Acquisition of businesses, net of cash acquired		—			—			(5,293	)		—		(5,293	)
Net cash provided by (used in) investing activities		783			(3,594	)		(5,293	)		—		(8,104	)
Financing activities:
Proceeds from senior credit facility - revolver		48,172			—			—			—		48,172
Repayments of senior credit facility - revolver		(41,298	)		—			—			—		(41,298	)
Repayments of senior credit facility – term loan		(1,459	)		—			—			—		(1,459	)
Payments for capital lease obligations		(51	)		—			—			—		(51	)
Net cash provided by (used in) financing activities		5,364			—			—			—		5,364
Net (decrease) increase in cash and cash equivalents		(316	)		(5,644	)		(498	)		—		(6,458	)
Cash and cash equivalents at beginning of period		316			5,734			498			—		6,548
Cash and cash equivalents at end of period	$	—		$	90		$	—		$	—	$	90

23

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENTS OF CASH FLOWS

(In thousands)

	For the Three Months Ended March 31, 2007
	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	(13,299	)	$	6,214		$	(762	)	$	—	$	(7,847	)
Investing activities:
Purchases of property, plant and equipment		(1,332	)		(6,794	)		(18	)		—		(8,144	)
Proceeds from disposal of property, plant and equipment		—			684			—			—		684
Changes in restricted cash		(36	)		—			—			—		(36	)
Net cash used in investing activities		(1,368	)		(6,110	)		(18	)		—		(7,496	)
Financing activities:
Proceeds from senior credit facility - revolver		43,108			—			—			—		43,108
Repayments of senior credit facility - revolver		(26,048	)		—			—			—		(26,048	)
Repayments of senior credit facility – term loan		(1,458	)		—			—			—		(1,458	)
Payments for capital lease obligations		(127	)		(12	)		—			—		(139	)
Issuances of stock, net of forfeitures		20			—			—			—		20
Net cash provided by (used in) financing activities		15,495			(12	)		—			—		15,483
Net (decrease) increase in cash and cash equivalents		828			92			(780	)		—		140
Cash and cash equivalents at beginning of period		154			88			780			—		1,022
Cash and cash equivalents at end of period	$	982		$	180		$	—		$	—	$	1,162

24

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following is management’s discussion and analysis of certain significant factors that have affected our financial condition and operating results during the periods included in the accompanying condensed consolidated financial statements. This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this report, and with management’s discussion and analysis of financial condition and results of operations and consolidated financial statements and notes thereto included in our 2007 Annual Report on Form 10-K.

General

We are a major manufacturer of recycled paperboard and converted paperboard products. We operate in four business segments. The paperboard segment manufactures 100% recycled uncoated and clay-coated paperboard and operates a specialty converting operation. The recovered fiber segment collects and sells recycled paper and brokers recycled paper and other paper rolls. The tube and core segment produces spiral and convolute-wound tubes and cores and edge protectors. The folding carton segment produces printed and unprinted folding cartons and set-up boxes.

Our business is vertically integrated to a large extent. This means that our converting operations consume a large portion of our own paperboard production, approximately 49% in the first three months of 2008. The remaining 51% of our paperboard production is sold to external customers in any of the four recycled paperboard end-use markets: tube and core; folding cartons; gypsum wallboard facing paper; and specialty paperboard products. These integration statistics do not include volume produced or converted by our 50% owned, unconsolidated joint venture, Premier Boxboard Limited. As part of our strategy to optimize our operating efficiency, each of our mills can produce recycled paperboard for more than one end-use market. This allows us to shift production among mills in response to customer or market demands.

More recently, in light of the difficult operating climate we have faced, and in an effort to reduce costs and improve our business mix, capacity utilization, and profitability, restructuring activities have been an important element of our strategy. The previous sales of our interest in Standard Gypsum, our corrugated box plant, and our partition operations, as well as the recent sale of a coated recycled paperboard mill, our specialty packaging division and our composite container and plastics businesses, are all part of our strategic transformation plan to reduce our debt and better position ourselves to compete and leverage our expertise in our core businesses.

We are a holding company that operates our business through 22 subsidiaries as of March 31, 2008. We also own a 50% interest in a joint venture with Temple-Inland. We account for the interests in our joint venture under the equity method of accounting. See “–Liquidity and Capital Resources – Off—Balance Sheet Arrangements – Joint Venture Financings” below.

Critical Accounting Policies

Our accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates that affect the amounts of revenues, expenses, assets, and liabilities reported. The critical accounting matters that are very important to the portrayal of our financial condition and results of operations and require some of management’s most difficult, subjective, and complex judgments are described in detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 filed with the Securities and Exchange Commission on March 14, 2008. The accounting for these matters involves forming estimates based on current facts, circumstances, and assumptions which, in management’s judgment, could change in a manner that would materially affect management’s future estimates with respect to such matters and, accordingly, could cause future reported financial condition and results of operations to differ materially from financial results reported based on management’s current estimates.

25

Results of Operations for the Three Months Ended March 31, 2008 and 2007

The volume information shown below includes shipments of paperboard products made or purchased by us (excluding volume shipped by our unconsolidated joint venture) combined and presented by end-use market lines as well as by reporting segments. It is important to note, however, that portions of our sales do not have related paperboard volume, such as sales of recovered fiber.

	Three Months Ended March 31,		Change		% Change
	2008	2007
Paperboard volume by end-use market (tons in thousands):
Tube and core market
Volume shipped to internal converters	59.0	62.9	(3.9	)	-6.2	%
Mill volume shipped to external customers	13.3	12.7	0.6		4.7	%
Total	72.3	75.6	(3.3	)	-4.4	%
Folding carton market
Volume shipped to internal converters	37.7	32.7	5.0		15.3	%
Mill volume shipped to external customers	24.8	25.0	(0.2	)	-0.8	%
Total	62.5	57.7	4.8		8.3	%
Gypsum wallboard facing paper market
Mill volume shipped to external customers	19.7	16.6	3.1		18.7	%
Specialty paperboard products market
Volume shipped to internal converters	22.7	25.7	(3.0	)	-11.7	%
Mill volume shipped to external customers	23.4	27.4	(4.0	)	-14.6	%
Total	46.1	53.1	(7.0	)	-13.2	%
Total paperboard volume	200.6	203.0	(2.4	)	-1.2	%
Paperboard volume by reporting segment (tons in thousands):
Paperboard segment	96.3	99.0	(2.7	)	-2.7	%
Tube and core segment	66.7	71.4	(4.7	)	-6.6	%
Folding carton segment	37.6	32.6	5.0		15.3	%
Total paperboard volume	200.6	203.0	(2.4	)	-1.2	%

Paperboard Volume. Total paperboard volume for the three months ended March 31, 2008, decreased 1.2% to 200.6 thousand tons from 203.0 thousand tons for the same period in 2007. Tons sold from paperboard mill production increased 1.1% to 163.2 thousand tons for the three months ended March 31, 2008, compared to the same period in 2007. The total volume of paperboard converted decreased 1.6% for the three months ended March 31, 2008.

Total paperboard volume decreased primarily due to a decrease in sales of converted paperboard to the tube and core end-use markets and a decrease in sales of uncoverted paperboard and converted paperboard to the specialty paperboard end use markets due to overall lower industry demand. These decreases were partially offset by increased sales of unconverted paperboard to the gypsum wallboard facing paper market and increased sales of converted paperboard to the folding carton end use market.

26

Sales. Our consolidated sales for the three months ended March 31, 2008 decreased 1.3% to $216.5 million from $219.4 million for the same period in 2007. The following table presents sales by business segment (in thousands):

	Three Months Ended March 31,				$ Change			% Change
	2008		2007
Paperboard	$	54,949	$	52,886	$	2,063		3.9	%
Recovered fiber		31,990		38,098		(6,108	)	-16.0	%
Tube and core		72,529		72,023		506		0.7	%
Folding carton		57,034		56,418		616		1.1	%
Total	$	216,502	$	219,425	$	(2,923	)	-1.3	%

Paperboard Segment

Sales for the paperboard segment increased primarily due to higher selling prices which accounted for approximately $3.8 million. This increase was partially offset by lower volume which accounted for approximately $0.4 million and a decrease of approximately $1.3 million in sales related to the disposition of a converting facility during 2007.

Recovered Fiber Segment

Sales for the recovered fiber segment decreased due to lower volume which accounted for a decrease of approximately $16.4 million which was partially offset by higher selling prices which accounted for an estimated increase of $10.3 million.

Tube and Core Segment

Sales for the tube and core segment increased primarily due to higher tube and core selling prices which accounted for an increase of $2.9 million. This increase was partially offset by lower volume which accounted for an estimated decrease of $2.2 million in sales.

Folding Carton Segment

Sales for the folding carton segment increased primarily due to higher volume.

Cost of Sales. Cost of sales for the three months ended March 31, 2008 decreased $4.9 million from $193.3 million in 2007 to $188.4 million in 2008. This decrease was primarily due to the following factors:

• Lower direct material costs, labor costs, freight costs, and other manufacturing costs of approximately $2.5 million in the paperboard segment related to the disposition of facilities during 2007.

• Lower depreciation expense of approximately $1.0 million due primarily to accelerated depreciation in 2007 in the folding carton segment related to a facility closure.

• Lower direct material and freight costs of approximately $6.3 million in the recovered fiber segment due to lower volume.

These factors were partially offset by the following increased expenses:

• Higher direct material costs of $2.5 million in the paperboard segment primarily due to increased fiber prices.

• Higher energy and fuel costs of $796 thousand in the paperboard segment due to increased fuel prices.

• Higher direct material costs of $1.3 million in the tube and core segment primarily due to increased paperboard costs.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended March 31, 2008 decreased $4.2 million from $28.6 million in 2007 to $24.4 million in 2008. The decrease was primarily due to the following factors:

• Elimination of approximately $716 thousand of selling, general and administrative salaries and related employee expenses in the paperboard segment.

• Reduction of approximately $1.0 million of selling, general and administrative salaries and related employee expenses in the folding carton segment.

• Lower bad debt expense of $850 thousand in the recovered fiber segment.

• Selling, general and administrative expense in 2007 included $665 thousand of additional costs related to the implementation of an enterprise resource planning system.

Restructuring and Impairment Costs. During the three months ended March 31, 2008, we incurred net charges totaling $722 thousand for restructuring and impairment costs. The total consisted of approximately $562 thousand for the impairment of assets, approximately $568 thousand for other exit costs and a reduction due to a credit to severance and other termination benefits of $408 thousand. We made payments of $254 thousand in severance and other termination benefits and $618 thousand for other exit costs during the three months ended March 31, 2008, leaving an estimated liability of $4.8 million at March 31, 2008.

27

See the notes to the condensed consolidated financial statements for additional information regarding our restructuring plans.

Income (Loss) From Operations. Income from operations for the three months ended March 31, 2008 was $3.0 million, an increase of $11.2 million compared to loss from operations of $8.2 million reported for the same period last year. The following table presents income (loss) from operations by business segment (in thousands):

	Three Months Ended March 31,						$ Change			% Change
	2008			2007
Paperboard	$	4,579		$	(1,364	)	$	5,943		435.7	%
Recovered fiber		3,048			1,416			1,632		115.3	%
Tube and core		1,689			1,471			218		14.8	%
Folding carton		1,924			(2,061	)		3,985		193.3	%
Corporate expense		(8,271	)		(7,697	)		(574	)	-7.5	%
Total	$	2,969		$	(8,235	)	$	11,204		136.1	%

Paperboard Segment

Income from operations improved primarily due to the following factors:

• Lower restructuring costs of approximately $3.9 million.

• Higher selling prices resulting in improved margins of approximately $1.1 million.

Recovered Fiber Segment

Income from operations improved primarily due to the following factors:

• Higher selling prices resulting in improved margins of approximately $490 thousand.

• Lower bad debt expense of approximately $850 thousand.

Tube and Core Segment

Income from operations improved primarily due to lower restructuring costs of approximately $648 thousand which was partially offset by lower volume which accounted for approximately $400 thousand.

Folding Carton Segment

Income from operations improved primarily due to the following factors:

• Lower restructuring costs of approximately $1.1 million.

• Higher volume resulting in improved margins of approximately $1.1 million.

• Reductions in total selling, general and administrative expenses of approximately $1.8 million.

Discontinued Operations. The loss from discontinued operations for the three months ended March 31, 2007, was $270 thousand. See notes to the condensed consolidated financial statements for additional discussion of discontinued operations.

Other (Expense) Income. Interest expense for the three months ended March 31, 2008 and 2007 was approximately $4.3 million and $4.7 million, respectively. See “—Liquidity and Capital Resources” for additional information regarding our debt, interest expense, and interest rate swap agreements.

Equity in Income from Unconsolidated Affiliates. Equity in income from unconsolidated affiliates was $1.9 million for the three months ended March 31, 2008, an increase of $1.8 million compared to the same period in 2007. This increase was primarily due to increased containerboard volume and margins which offset the decline in gypsum wallboard facing paper.

(Expense) Benefit for Income Taxes. The effective rate of income tax for continuing operations for the three months ended March 31, 2008 was an expense of 72.8%, compared to a benefit of 27.2% for the same period last year. The effective rates are different from the statutory rates due to permanent tax adjustments, the inability of the Company to record the tax benefits of losses in certain state and foreign jurisdictions, the write-off of goodwill with no tax basis, and changes in the estimated state income tax rates.

Net Income (loss). Due to the factors discussed above, net income for the three months ended March 31, 2008 was $163 thousand, or $0.01 per common share, compared to a net loss of $8.9 million, or $0.31 net loss per common share, for the same period last year.

28

Liquidity and Capital Resources

Liquidity Sources and Risks. Our primary sources of liquidity are cash from operations and borrowings under our senior credit facility, described below. Downturns in operations can significantly affect our ability to generate cash. Factors that can affect our operating results and liquidity are discussed further in our 2007 Annual Report on Form 10-K under “—Risk Factors” in Part I, Item 1A. We believe that our cash on hand at March 31, 2008 of $90 thousand together with our borrowing availability under our senior credit facility will be sufficient to meet our cash requirements for the next 12 months. However, it is likely that we will refinance our $200.0 million outstanding senior notes due in June 2009. We are evaluating various refinancing alternatives. If we are unable to generate cash at projected levels and consummate certain contemplated asset sales, our ability to generate cash sufficient to meet our long-term requirements is uncertain. The following are some of the factors that could affect our future ability to generate cash from operations:

• Continued volatility in the debt markets.

• A contraction in domestic demand for recycled paperboard and related packaging products.

• Increased market acceptance of alternative products, such as flexible packaging and plastics that have replaced or can replace certain of our packaging products.

• Continued export of domestic industrial manufacturing operations.

• Potential increases in fuel and energy costs.

• Potential increases in the cost of recovered fiber.

• Market acceptance of price increases and energy surcharges in response to rising operating costs.

• Significant unforeseen adverse conditions in our industry or the markets we serve.

The occurrence, continuation, or exacerbation of these conditions could require us to seek additional funds from external sources in order to meet our liquidity requirements. In such event, our ability to obtain additional funds would depend on the various business and credit market conditions prevailing at the time, which are difficult to predict and many of which are out of our control. Our ability to secure additional funds could also be materially adversely affected by our substantial indebtedness. Additional risks related to our substantial indebtedness are discussed under “Risk Factors — Our substantial indebtedness could adversely affect our cash flow and our ability to fulfill our obligations under our indebtedness” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

The availability of liquidity from our Senior Credit Facility (as previously defined) is primarily affected by our collateral base and our continued compliance with the terms of the Senior Credit Facility, including the payment of interest and compliance with various covenants and financial maintenance tests. We were in compliance with the covenants under our Senior Credit Facility as of March 31, 2008. Absent a deterioration of the U.S. economy as a whole or the specific sectors on which our business depends, we believe we will be in compliance with our covenants under the senior credit agreement for the next 12 months.

Borrowings. At March 31, 2008 and December 31, 2007, total debt (consisting of current maturities of debt and long-term debt, as reported on our condensed consolidated balance sheets) was as follows (in thousands):

	March 31, 2008		December 31, 2007
Senior credit facility-revolver	$	17,213	$	10,339
Senior credit facility-term loan		18,589		20,048
7 3/8% senior notes		189,750		189,750
7 1/4% senior notes		29,000		29,000
Other notes payable		8,200		8,200
Realized interest rate swap gains (1)		1,156		1,505
Total debt	$	263,908	$	258,842

(1) Consists of realized interest rate swap gains less the original issuance discounts and accumulated discount amortization related to the senior notes.

On March 30, 2006, we amended our Senior Credit Facility by entering into an Amended and Restated Credit Agreement. The agreement provides for a $145.0 million senior secured credit facility consisting of a $110.0 million five-year revolver and a $35.0 million five-year term loan. The five-year revolver was reduced from $110.0 million to $100.0 million in October 2006. On May 14, 2007, we amended our senior credit facility which impacted the calculation of the availability under the Senior Credit Facility and changed the applicable margins in the pricing grid which is discussed in more detail below. The Senior Credit Facility is secured by substantially all of our assets and our domestic subsidiaries other than real property, including accounts

29

receivable, general intangibles, inventory, and equipment. Our subsidiaries are parties to the Senior Credit Facility either as co-borrowers with us or as guarantors. At March 31, 2008, we had $18.6 million outstanding under the five-year term loan and $17.2 million outstanding under the revolver.

The revolver matures on March 30, 2011 and includes a sublimit of $25.0 million for letters of credit. Borrowing availability under the revolver is determined by reference to a borrowing base, defined as specified percentages of eligible accounts receivable and inventory and reduced by usage of the revolver, including outstanding letters of credit, and any reserves. Aggregate availability under the revolver was $27.0 million at March 31, 2008. The term loan was drawn in full at closing and is required to be repaid in monthly installments based on a level six-year amortization schedule, with all remaining outstanding principal due on March 30, 2011.

Outstanding principal of the term loan initially bears interest at a rate equal to, at our option, either (1) the base rate (which is the prime rate most recently announced by Bank of America, N.A., the administrative agent under the Senior Credit Facility) plus 0.50%, or (2) the adjusted one, two, three, or six-month LIBOR rate plus 2.00%. Outstanding principal under the revolver initially bears interest at a rate equal to, at our option, either (1) the base rate plus .25% or (2) the adjusted one, two, three, or six-month LIBOR rate plus 1.75%. Pricing under the Senior Credit Facility is determined by reference to a pricing grid under which margins shall be adjusted prospectively on a quarterly basis as determined by the average availability and fixed charge coverage ratio measured as of the last day of each fiscal quarter, commencing with the fiscal quarter ended June 30, 2007. Under the pricing grid, the applicable margins for the term loan range from 0.0% to 1.0% for base rate loans and from 1.50% to 2.50% for LIBOR loans, and the applicable margins for the revolver range from 0.0% to 0.75% for base rate loans and from 1.25% to 2.25% for LIBOR loans. The undrawn portion of the revolver is subject to an unused line fee calculated at an annual rate of 0.25%. Outstanding letters of credit are subject to an annual fee equal to the applicable margin for LIBOR loans under the revolver as in effect from time to time, plus a fronting fee on the undrawn amount thereof at an annual rate of 0.125%. The actual rates in effect at March 31, 2008 were 4.90% and 5.15% for outstanding revolver and term loan borrowings, respectively.

The Senior Credit Facility contains covenants that restrict, among other things, our ability and our subsidiaries’ ability to create liens, merge or consolidate, dispose of assets, incur indebtedness and guarantees, pay dividends, repurchase or redeem capital stock and indebtedness, make certain investments or acquisitions, enter into certain transactions with affiliates, enter into sale and leaseback transactions, or change the nature of our business. The Senior Credit Facility contains no financial maintenance covenants at this time; however, we must maintain a $15.0 million “Minimum Availability Reserve” at all times. The availability disclosed is net of this reserve. There is a one-time option to convert to a springing covenant financial structure where the $15.0 million Minimum Availability Reserve would be eliminated; however, a fixed charge ratio would be tested in the event borrowing availability falls below $20.0 million. Currently, we would not meet the fixed charge coverage ratio and, therefore, do not anticipate exercising this option. The Senior Credit Facility contains events of default including, but not limited to, nonpayment of principal or interest, violation of covenants, breaches of representations and warranties, cross-default to other indebtedness, bankruptcy and other insolvency events, material judgments, certain ERISA events, actual or asserted invalidity of loan documentation, and certain changes of control of the Company.

Off-Balance Sheet Arrangements – Joint Venture Financings. On January 17, 2006, we completed the sale of our 50% interest in our joint venture Standard Gypsum to the joint venture’s other 50% partner, Temple-Inland, for $150.0 million. The sale resulted in a gain of approximately $135.2 million, which was recorded in January 2006. We provided certain environmental indemnification not to exceed $5.0 million for any claims related to events that occurred prior to the formation of the Standard Gypsum joint venture on April 1, 1996. This indemnification will terminate January 17, 2011. We did not record a liability related to this indemnification since the probability of an asserted claim is considered remote.

Since December 31, 2007, there have been no material changes in our obligations with respect to our other joint venture, Premier Boxboard Limited. For more information about these obligations and contingencies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Off-Balance Sheet Arrangements” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007. Because we account or accounted for the interests in our joint ventures under the equity method of accounting, the indebtedness of these joint ventures is not reflected in the liabilities included on our consolidated balance sheets.

Cash Used in Operations. Cash used in operations was $3.7 million for the three months ended March 31, 2008, compared with cash used in operations of $7.8 million for the same period in 2007. This improvement was primarily due to our improvement in operating results of approximately $9.1 million, partially offset by an increase in cash used for working capital of $1.8 million and pension plan contributions of $3.1 million during the three months ended March 31, 2008 compared to no payments during the same period in 2007.

Capital Expenditures. Capital expenditures were $3.9 million for the three months ended March 31, 2008 versus $8.1 million for the same period in 2007. Aggregate capital expenditures of approximately $12 million to $15 million are anticipated for 2008, of which $3.9 million has been expended through March 31, 2008. Management believes the Company will have sufficient liquidity to complete our remaining 2008 capital expenditures.

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Dividends. Our debt agreements contain limitations on the payment of dividends and currently preclude us from doing so.

Inflation

Raw material and energy cost changes have had, and continue to have, a material effect on our operations. We do not believe that general economic inflation is a significant determinant of our raw material and energy cost increases or that it has a material effect on our operations.

Contractual Obligations

For a discussion of our contractual obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources — Contractual Obligations” and Note 7 of “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

The only significant changes to our contractual obligations since December 31, 2007 are the repayment or incurrence of debt and interest under the Senior Credit Facility. These borrowings resulted in payment obligations as of March 31, 2008 as follows (in thousands):

	Payments due by
Contractual Obligations	Total		Less than 1 year		2-3 years		4-5 years		More than 5 years
Borrowings:
Senior credit facility-term loan	$	18,589	$	5,830	$	12,759	$	—	$	—
Senior credit facility-revolver		17,213		—		17,213		—		—
Interest payment obligation for senior credit facility		3,950		1,611		2,339		—		—
Total	$	39,752	$	7,441	$	32,311	$	—	$	—

As of March 31, 2008, the noncurrent portion of our FIN 48 liability, including accrued interest and penalties related to unrecognized tax benefits, is $14.0 million. At this time, the settlement period for the noncurrent portion of our FIN 48 liability cannot be determined; however, it is not expected to be due within the next 12 months.

Forward-Looking Information

This quarterly report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains certain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that represent our expectations, anticipations, or beliefs about future events, including our operating results, financial condition, liquidity, expenditures, and compliance with legal and regulatory requirements. These statements involve risks and uncertainties that could cause actual results to differ materially depending on a variety of important factors, including, but not limited to, fluctuations in raw material prices and energy costs, our ability to refinance our substantial indebtedness at maturity, downturns in industrial production, housing and construction and the consumption of durable and nondurable goods, the degree and nature of competition, demand for our products, the degree of success achieved by our new product initiatives, increases in pension and insurance costs, changes in government regulations, the application or interpretation of those regulations or in the systems, personnel, technologies or other resources we devote to compliance with regulations, our ability to complete acquisitions and successfully integrate the operations of acquired businesses, the impact on the company of its results of operations in recent years and the sufficiency of its financial resources to absorb the impact, our ability to successfully dispose of our assets held for sale, unforeseen difficulties with the integration of our IT systems. Additional relevant risk factors that could cause actual results to differ materially are discussed in the company’s registration statements and its most recent reports on Form 10-K, 10-Q and 8-K, as amended, filed with or furnished to, the Securities and Exchange Commission (the “SEC”). With respect to such forward-looking statements, we claim protection under the Private Securities Litigation Reform Act of 1995. Our SEC filings are available from us, and also may be examined at public reference facilities maintained by the SEC or, to the extent filed via EDGAR, accessed through the website of the SEC (http://www.sec.gov). We do not undertake any obligation to update any forward-looking statements we make.

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PART I

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of certain market risks related to us, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007. There have been no significant developments with respect to our exposure to interest rate market risks other than the debt transactions disclosed in the notes to our condensed consolidated financial statements.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, 2008. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2008, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company’s reports that it files or submits under the Securities Exchange Act of 1934.

Changes in Internal Control Over Financial Reporting

In the first quarter of 2007, we began the implementation of a new Enterprise Resource Planning system. Due to this implementation, internal controls have changed in various functional areas within the company. Management has taken steps to ensure appropriate controls are designed and implemented as each functional area of the system is enacted. This implementation is anticipated to continue throughout 2008.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, claims are asserted against the Company arising out of its operations in the normal course of business. Management does not believe that the Company is a party to any litigation that will have a material adverse effect on its financial condition or results of operation.

ITEM 1A. RISK FACTORS

For a discussion of our risk factors, see Risk Factors in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007. There have been no material changes to those risk factors since the date of the Annual Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Our debt agreements contain limitations on the payment of dividends and currently preclude us from doing so.

ITEM 6. EXHIBITS

a) Exhibits

The Exhibits to this Report on Form 10-Q are listed in the accompanying Exhibit Index.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CARAUSTAR INDUSTRIES, INC.
	By:	/s/ Ronald J. Domanico
Date: May 9, 2008		Ronald J. Domanico Senior Vice President and Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.		Description
3.01	—	Amended and Restated Articles of Incorporation of the Company (Incorporated by reference — Exhibit 3.01 to Annual Report for 1992 on Form 10-K [SEC File No. 0-20646])
3.02	—	Third Amended and Restated Bylaws of the Company (Incorporated by reference — Exhibit 3.02 to Annual Report for 2001 on Form 10-K [SEC File No. 0-20646])
10.01†	—	Form of Amendment to Terms of Employment, dated April 8, 2008, between the Company and the officers of the Company.
10.02†	—	Form of Amended and Restated Change in Control Severance Agreement, dated April 8, 2008, between the Company and the officers of the Company.
10.03†	—	Caraustar Industries, Inc. Amended and Restated Restoration Plan, dated as of April 8, 2008.
10.35†	—	Agreement for Purchase and Sale of Mayers Fibre Tube & Core, dated as of January 1, 2008, by and among the Company, Caraustar Industrial Canada, Inc. and 2789737 Manitoba Ltd.
31.01†	—	Certification of CEO — Pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02†	—	Certification of CFO — Pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01†	—	Certification of CEO — Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.02†	—	Certification of CFO — Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

† Filed herewith

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EX-10.01

Exhibit 10.01

CARAUSTAR INDUSTRIES, INC.

FORM AMENDMENT TO TERMS OF EMPLOYMENT

This Agreement entered into as of the date below amends that certain letter employment agreement between (Employee Name) (the “Executive”) and Caraustar Industries, Inc. (the “Company”) dated as of October 1, 2002 (the “Letter Agreement”) to comply with Section 409A of the Internal Revenue Code of 1986, as amended, and applicable Treasury Regulations and Internal Revenue Service guidance issued thereunder.

1.

Section 7 of the Letter Agreement entitled Severance Benefits is amended in its entirety to read as follows:

7. Severance Benefits:

(a) Qualifying Involuntary Termination.

(i) On the thirtieth (30^th) day following the date you have a “Qualifying Involuntary Termination” (as defined in paragraph (ii) below), or if such date is not a business day, on the first business day that is at least thirty (30) days following the date of your Qualifying Involuntary Termination, the Company shall pay to you a lump sum cash amount equal to (the term in the letter agreement) months of your then-current base salary.

(ii) For purposes of this subsection (a), the term “Qualifying Involuntary Termination” shall mean your termination of employment with the Company, other than as a result of your death, “disability” (as defined below), by you for any reason, for “cause” (as defined below), or in connection with a qualifying termination under the terms of a change in control severance agreement to be entered into between you and the Company; provided, that no termination will be treated as a Qualifying Involuntary Termination unless it constitutes a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and applicable Treasury Regulations and Internal Revenue Service guidance issued thereunder.

(iii) Additionally, for (the term in the letter agreement) months following your Qualifying Involuntary Termination (the “Continuation Period”), if you are eligible for and elect continued health coverage for yourself or for yourself and your qualified dependents under a group health plan of the Company or an affiliate provided to satisfy the requirements of Section 4980B of the Code (“COBRA Coverage”), the Company will reimburse you for the actual premium charged to you for such COBRA Coverage for you and each of your dependents who is a “qualified beneficiary” within the meaning of Section 4980B of the Code. Such reimbursements (which shall be taxable income to you) shall be paid to you directly or to the applicable group health plan, as determined by the Company, on or as soon as practicable after each due date for such COBRA Coverage premium. All such reimbursement payments shall be completed on or before December 31 of the second calendar year following the calendar year that includes your separation from service.

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(iv) For the Continuation Period, the Company, at the Company’s sole expense, shall provide you with life insurance, long-term disability and accidental death and dismemberment insurance benefits that are substantially the same as the long-term disability and accidental death and dismemberment insurance benefits that were provided to you and your dependents immediately before your separation from service.

(v) Notwithstanding any contrary provision, if any amounts under paragraph (i) above are scheduled to be paid at the time that the stock of the Company is publicly traded on an established securities market or otherwise and you are a “specified employee” as defined below, then no such amounts shall be paid to you before the six-month anniversary of your Qualifying Involuntary Termination (or, if earlier, the date of your death) and any amounts that would have been paid prior to the six-month anniversary of your Qualifying Involuntary Termination shall be accumulated and distributed (together with interest at the applicable federal rate as defined in Section 1274(d) of the Internal Revenue Code) upon the six-month anniversary of your Qualifying Involuntary Termination, or if such date is not a business day, on the first business day that follows such six-month anniversary; provided, however, if you die before the six-month anniversary of your Qualifying Involuntary Termination, the payment will be made on the first business day following the date the Company has notice of your death. You will be a “specified employee” on any date in the applicable period if you are employed by the Company or any affiliate of the Company that would be considered a single employer with the Company under Section 414(a) or (b) of the Internal Revenue Code of 1986, as amended (the “Code”), and you were a “key employee” within the meaning of Section 416(i) of the Code (without regard to paragraph (5) thereof) at any time during the 12-month period ending on the identification date. For the period beginning January 1, 2005 and ending March 30, 2006, the identification date is December 31, 2004. Thereafter, the applicable period is each 12-month period beginning on April 1, 2006 and each subsequent April 1 and the identification date for each such period is the immediately preceding December 31. For example, for the period beginning April 1, 2006, the identification date is December 31, 2005. Specified employees shall be determined in accordance with Section 409A.

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

(c) Benefits Under Change in Control Severance Agreement. In the event of a qualifying termination under the terms of your change in control severance agreement with the Company, you will be entitled to receive the benefit provided thereunder.

(d) Definitions. For purposes of this offer, “disability” means termination owing to your inability to perform your duties hereunder by reason of disability or incapacity, due to physical or mental illness, for a period in excess of six (6) consecutive months, and “cause” means (i) your commission of a felony; or (ii) fraud, misappropriation or embezzlement

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involving Company property or other intentional wrongful acts that materially impair the goodwill or business of the Company or that cause material damage to the Company’s property, goodwill or business.

(e) Forfeiture or Recoupment of Severance Benefits.

(1) General. If you engage in any act or omission constituting misconduct, as that term is defined in paragraph (2) below, the Company shall have the rights set forth in paragraph (3) to cause you to forfeit unpaid severance benefits under this Section 7, or to require you to pay back to the Company any severance benefits under this Section 7 that have already been paid to you.

(2) Definition of Misconduct. For the purposes of this Section 7, the term “misconduct” shall mean any of the following events:

(A) The Company is required to prepare an accounting restatement due to material noncompliance, and the material noncompliance was due at least in part to your acts or omissions;

(B) You disclose to others, or use for your own purpose, any proprietary information or intellectual property (including customer lists, supplier lists, pricing and cost data, computer programs, advertising plans, wage or salary data, financial information, research and development plans, etc.) and all other types of information that the Company intends or expects to be kept secret, or which disclosure breaches any agreement that you have entered into with the Company;

(C) You, without the consent of the Company, directly or indirectly engage in, become employed by, or render services, advice or assistance to any business in competition with the Company at any time during the twelve (12) month period following termination of employment with the Company, or violate any other non-compete agreement that you have entered into with the Company;

(D) You induce, or attempt to induce, directly or indirectly, any of the Company’s customers, employees, representatives or consultants to terminate working for the Company, or breach any non-solicitation agreement that you have entered into with the Company;

(E) You fail to promptly return all documents and other tangible items belonging to the Company upon termination of employment with the Company;

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(F) You commit an act of embezzlement, fraud or theft with respect to the property of the Company;

(G) You engage in any other act or omission not listed above which constitutes dishonesty, intentional breach of fiduciary obligation or intentional wrongdoing, and which results in substantial harm to the business or property of the Company.

(3) Forfeiture or Repayment of Severance Benefits. Upon your engaging in an act or omission constituting misconduct, the Company shall be entitled, in its sole discretion, to take the following actions:

(A) The Company may give notice to you that some or all of the future unpaid severance benefits otherwise to be paid to you shall be forfeited by you.

(B) The Company may notify you that you must repay to the Company some or all of the severance benefits previously paid to you.

(C) The determination of whether the remedies in this paragraph (3) shall be applied to any act or omission constituting misconduct by you, and the amount of the forfeiture of future severance benefits or the amount to be repaid to the Company by you in such case, shall be made by the Company in its sole determination.

(D) The determination of the Company not to seek remedies against you under this paragraph (3) in any case of misconduct, or the determination of the Company not to seek the full amount of remedy available to it, shall not constitute a waiver as to any other case of misconduct by you.

(E) The remedies under this paragraph (3) may be enforced by any legal means available to the Company.

(4) Remedies Not Exclusive. The remedies set forth in this subsection (e) shall not be the exclusive remedies available to the Company in the event of your misconduct, and the Company shall not be precluded from taking any or all other actions against you that may be available to it.

2.

Any compensation paid under the Letter Agreement, as amended by this Agreement, is intended to satisfy the requirements of Section 409A or be exempt from Section 409A and this Agreement shall be interpreted to effectuate that intent.

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3.

The effective date of this Agreement is January 1, 2005 or, if later, the effective date of the Prior Agreement.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of the Company and Executive has executed this Agreement as of the day and year first above written.

CARAUSTAR INDUSTRIES, INC.
By:	/s/ Michael J. Keough
Its:	President and CEO	(Employee Name)

Dated:	Dated:
April 8, 2008

5

EX-10.02

Exhibit 10.02

AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE AGREEMENT

THIS AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE AGREEMENT (this “Agreement”) is entered into as of the 8th day of April, 2008 by and between Caraustar Industries, Inc., a North Carolina corporation (the “Company”), and (Employee Name) (“Executive”).

Background Statement

The Company considers the establishment and maintenance of a sound and vital management team to be essential to protecting and enhancing the best interests of the Company and its shareholders. In addition, the Company recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may arise, and that such possibility may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. The Board (as defined in Section 1(a)) has therefore determined that it is in the best interests of the Company and its shareholders to secure Executive’s continued services and to ensure Executive’s continued dedication to his duties in the event of any threat or occurrence of a Change in Control (as defined in Section 1(c)) of the Company, and has authorized the Company to enter into this Agreement. This Agreement amends, restates and replaces the Change in Control Agreement by and between the Company and Executive dated December 29, 2006, as amended, (the “Prior Agreement”) for the purpose of complying with Section 409A of the Internal Revenue Code of 1986, as amended, and applicable Treasury Regulations and Internal Revenue Service guidance issued thereunder (“Section 409A”). The effective date of this Agreement is January 1, 2005 or, if later, the effective date of the Prior Agreement. Any compensation paid under this Agreement is intended to satisfy the requirements of Section 409A or be exempt from Section 409A and this Agreement shall be interpreted to effectuate that intent.

Statement of Agreement

NOW, THEREFORE, the Company and Executive hereby agree as follows:

1. Definitions. As used in this Agreement, the following terms shall have the respective meanings set forth below:

(a) “Board” means the Board of Directors of the Company.

(b) “Cause” means (i) the willful and continued failure of Executive substantially to perform his duties with the Company (other than any such failure resulting from Executive’s incapacity due to physical or mental illness or any such failure subsequent to Executive being delivered a notice of termination without Cause by the Company or delivering a notice of termination for Good Reason to the Company) after the Board delivers to Executive a written demand for substantial performance that specifically identifies the manner in which the Board believes that Executive has not substantially performed Executive’s duties, (ii) the commission of an act by Executive constituting dishonesty or fraud against the Company, (iii) Executive’s conviction of or entering of a guilty or no contest plea with respect to a felony, (iv) habitual absenteeism, chronic

alcoholism or any other form of substance abuse by Executive, or (v) the commission of an act by Executive involving gross negligence or moral turpitude that brings the Company or any of its affiliates into public disrepute or disgrace or causes material harm to the customer relations, operations or business prospects of the Company or any of its affiliates. For purposes of this Section 1(b), no act or failure to act by Executive shall be considered “willful” unless done or omitted to be done by Executive in bad faith and without reasonable belief that such act or failure to act was in the best interests of the Company or its affiliates. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board, the advice of counsel for the Company or the instructions of the Company’s chief executive officer or another senior officer of the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company. Cause shall not exist unless and until (x) there has been a meeting of the Board, held after reasonable notice to Executive, at which Executive, together with counsel, is afforded a reasonable opportunity to be heard and (y) the Company has delivered to Executive a copy of a resolution, duly adopted by three quarters (3/4) of the entire Board (excluding Executive if Executive is a Board member) at or after such meeting, finding that an event described in one of clauses (i) through (v) has occurred and specifying the particulars thereof.

(c) “Change in Control” means the occurrence of any one of the following events:

(i) individuals who, on the date hereof, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election or nomination for election was approved by a vote of at least two thirds (2/3) of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director;

(ii) any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the “Exchange Act”) and in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, that such event shall not be deemed to be a Change in Control by virtue of any acquisition of Company Voting Securities (A) by the Company or any Subsidiary, (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in Section 1(c)(iii)), (E) pursuant to any acquisition by Executive or any group of persons including Executive (or any entity controlled by Executive or by any group of persons including Executive); or (F) pursuant to or in connection with a transaction (other than a Business Combination) in which Company Voting Securities are acquired from the Company, if a majority of the Incumbent Directors approve a resolution providing expressly that such transaction does not constitute a Change in Control under this Section 1(c)(ii);

(iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company’s shareholders, whether for such transaction or for an issuance of securities in or in connection with the transaction (a “Business Combination”), unless immediately following such Business Combination (A) more than 50% of the total voting power of the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”) or, if there is no Parent Corporation, the corporation resulting from such Business Combination (the “Surviving Corporation”), is represented by Company Voting Securities that were outstanding immediately prior to

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such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan or related trust sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 25% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination (any Business Combination that satisfies all of the criteria specified in clauses (A), (B) and (C) above shall be deemed to be a “Non-Qualifying Transaction”); or

(iv) the Company acts upon a plan of complete liquidation or dissolution of the Company approved by the shareholders of the Company or effects a sale of all or substantially all of the Company’s assets approved by the shareholders of the Company.

Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 25% of the Company Voting Securities as a result of an acquisition or a series of acquisitions of Company Voting Securities by the Company that reduces the number of Company Voting Securities outstanding; however, if such person thereafter becomes the beneficial owner of additional Company Voting Securities that increase the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then be deemed to occur.

(d) “Date of Termination” means, subject to Section 1(k), (i) the effective date on which Executive’s employment by the Company terminates as specified in a prior written notice by the Company or Executive, as the case may be, to the other, delivered pursuant to Section 9 or (ii) if Executive’s employment by the Company terminates by reason of death or Disability, the date of death or Disability of Executive. Notwithstanding the foregoing, and except as provided in Subsection 1(k), for purposes of payments to be made under Subsections (a)(i)-(iii), Executive’s Date of Termination shall be the date as of which he has a Qualifying Termination.

(e) “Disability” means termination of Executive’s employment by the Company due to Executive’s absence from Executive’s duties with the Company on a full-time basis for at least 180 consecutive days as a result of Executive’s incapacity due to physical or mental illness.

(f) “Good Reason” means the occurrence of any of the following events, without Executive’s express written consent, after a Change in Control:

(i) any change in the duties or responsibilities (including reporting responsibilities) of Executive that is materially and adversely inconsistent with Executive’s position(s), duties, responsibilities or status with the Company immediately prior to such Change in Control (including any material and adverse diminution of such duties or responsibilities), or a material and adverse change in Executive’s titles or offices with the Company as in effect immediately prior to such Change in Control;

(ii) a reduction by the Company in Executive’s rate of annual base salary as in effect immediately prior to such Change in Control or as it may be increased from time to time thereafter, except for any reduction as part of across-the-board salary reductions similarly affecting all management personnel of the Company;

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(iii) any requirement of the Company that Executive be based anywhere more than 50 miles from the office where Executive is located at the time of the Change in Control;

(iv) any purported termination of Executive’s employment that is not effectuated pursuant to Section 9(b) (and that therefore will not constitute a termination hereunder); or

(v) the failure of the Company to obtain any assumption (and, if applicable, guarantee) agreement from the Surviving Corporation (and the Parent Corporation) required by Section 8(b).

An action taken in good faith and remedied by the Company within thirty days after receipt of notice thereof given by Executive shall not constitute Good Reason. Executive’s right to payment pursuant to Section 4(a) upon termination of employment for Good Reason shall not be affected by Executive’s incapacities due to mental or physical illness, nor shall Executive’s continued employment constitute consent to, or a waiver of rights with respect to, any event or condition constituting Good Reason except that no event shall constitute Good Reason unless Executive provides notice of termination of employment within 90 days following Executive’s knowledge of the occurrence thereof.

(g) “Qualifying Termination” means a termination of Executive’s employment (i) by the Company other than for Cause or on account of death, Disability or Retirement or (ii) by Executive for Good Reason; provided, that no termination will be treated as a Qualifying Termination unless it constitutes a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and applicable Treasury Regulations and Internal Revenue Service guidance issued thereunder.

(h) “Retirement” means Executive’s mandatory retirement (not including any mandatory early retirement) in accordance with the Company’s retirement policy generally applicable to its salaried employees as in effect immediately prior to the Change in Control, or in accordance with any retirement arrangement established with respect to Executive with Executive’s written consent.

(i) “Specified Employee” means on any date in the applicable period, any employee of the Company or any affiliate of the Company that would be consider a single employer with the Company under Section 414(a) or (b) of the Internal Revenue Code of 1986, as amended, (the “Code”) who was a “key employee” within the meaning of Section 416(i) of the Code (without regard to paragraph (5) thereof) at any time during the 12-month period ending on the identification date. For the period beginning January 1, 2005 and ending March 30, 2006, the identification date is December 31, 2004. Thereafter, the applicable period is each 12-month period beginning on April 1, 2006 and each subsequent April 1 and the identification date for each such period is the immediately preceding December 31. For example, for the period beginning April 1, 2006, the identification date is December 31, 2005. Specified Employees shall be determined in accordance with Section 409A.

(j) “Subsidiary” means any corporation or other entity of which the Company has a direct or indirect ownership interest in 50% or more of the total combined voting power of the then outstanding securities or interests entitled to vote generally in the election of directors or of which the Company has the right to receive 50% or more of the distribution of profits or 50% of the assets upon liquidation or dissolution.

(k) “Termination Period” means the period of time beginning with a Change in Control and ending on the second anniversary of such Change in Control. Notwithstanding anything in this Agreement to the contrary, if (i) Executive has a Qualifying Termination prior to a Change in Control, (ii) Executive reasonably demonstrates that such Qualifying Termination was based on the request of a third party, or that the Good Reason event for which Executive gives notice of termination was based on a third party’s actions, and such third party had indicated an intention or taken steps

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reasonably calculated to effect a Change in Control, and (iii) a Change in Control involving such third party (or a party competing with such third party to effectuate a Change in Control) does occur, then a Change of Control shall be deemed to have occurred on the date immediately prior to the date of such Qualifying Termination for all purposes of this Agreement. For purposes of determining the timing of payments and benefits to Executive under Section 4 and the required notice period under Section 9(b), the date of the actual Change in Control shall be treated as Executive’s Date of Termination under any of the circumstances described in clauses (i) through (iii) above.

2. Covenants of the Executive.

(a) In the event of a tender or exchange offer, proxy contest, or the execution of any agreement that, if consummated, would constitute a Change in Control, Executive agrees not to voluntarily leave the employ of the Company, other than as a result of Disability, Retirement or an event that would constitute Good Reason if a Change in Control had occurred, until the Change Control occurs, or if earlier, such tender or exchange offer, proxy contest, or agreement is terminated or abandoned.

(b) As a condition precedent to and in consideration of Executive’s receipt of the payments and benefits set forth in this Agreement, Executive agrees to adhere to the terms and conditions set forth in the Executive’s confidentiality and non-competition agreement with the Company.

3. Term of Agreement. This Agreement shall be effective on the date hereof and shall continue in effect until the Company shall have given one year’s written notice of cancellation; provided that, notwithstanding the delivery of any such notice, this Agreement shall continue in effect for a period of two years after a Change in Control if such Change in Control occurs prior to the effective date of such cancellation. Notwithstanding anything in this Section 3 to the contrary, this Agreement shall terminate, except as provided in Section 1(l), if Executive or the Company terminates Executive’s employment prior to a Change in Control.

4. Payments Upon Termination of Employment.

(a) Qualifying Termination. If the employment of Executive terminates pursuant to a Qualifying Termination during the Termination Period, then the Company shall provide to Executive:

(i) On the tenth day following the Date of Termination, or if such date is not a business day, on the first business day that is at least ten days, following the Date of Termination, a lump-sum cash amount equal to the sum of (A) the pro rata share of any of Executive’s base salary earned, but not yet paid, through the Date of Termination and any bonus amounts that have become payable, to the extent not theretofore paid or deferred, plus (B) and any accrued vacation pay, in each case to the extent not theretofore paid;

(ii) On the thirtieth day following the Date of Termination, or if such day is not a business day, on the first business day that is at least ten days following the Date of Termination, a cash amount for projected payments to the Executive under the Company’s incentive programs, equal to the average annual incentive bonus actually paid in the prior two years;

(iii) On the thirtieth day following the Date of Termination, or if such day is not a business day, on the first business day that is at least thirty days following the Date of Termination, a lump sum cash amount equal to the lesser of (A) product of (1) 2 multiplied by (2) Executive’s annual rate of base salary as in effect immediately prior to the Date of Termination, and (B) the product of (1) 2.99 multiplied by (2) Executive’s “Base Amount,” as defined in Section 280G(b)(3) of the Code.

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(iv) For eighteen months following the Date of Termination, if Executive is eligible for and elects continued health coverage for Executive or for Executive and Executive’s qualified dependents under a group health plan of the Company or an affiliate provided to satisfy the requirements of Section 4980B of the Code (“COBRA Coverage”), the Company will reimburse the Executive for the actual premium charged to Executive for such COBRA Coverage for Executive and each of Executive’s dependents who is a “qualified beneficiary” within the meaning of Section 4980B of the Code. Such reimbursements (which shall be taxable income to Executive) shall be paid to Executive directly or to the applicable group health plan, as determined by the Company, on or as soon as practicable after each due date for such COBRA Coverage premium. Such reimbursements shall be made on or before December 31 of the second calendar year following the calendar year that includes the Date of Termination.

(v) For two years following the Date of Termination, the Company, at the Company’s sole expense, shall provide the Executive with life insurance, long-term disability and accidental death and dismemberment insurance benefits that are substantially the same as the long-term disability and accidental death and dismemberment insurance benefits that were provided to Executive and Executive’s dependents immediately before the Qualifying Termination, except that the health and welfare benefits to which the Executive is entitled under Subsection (iv) and this Subsection (v) will be subject to the Executive’s compliance with the Executive’s confidentiality and non-competition agreement and will be reduced to the extent that comparable health and welfare benefits are received by the Executive from an employer other than the Company during the two year period following the Date of Termination. The fact that the cost of the participation by the Executive, or the Executive’s dependents or beneficiaries, in any health or welfare benefit plan was paid indirectly by the Company, as a reimbursement or a credit to the Executive, before the Qualifying Termination does not mean that the corresponding health and welfare benefits were not “provided to the Executive” by the Company for purposes of this Subsection (v). As used in this subsection, health and welfare benefits shall include: all life insurance, disability insurance, accidental death and dismemberment insurance and health care (medical, dental and prescription drug) coverage.

(vi) In the second and third calendar years following the Date of Termination, the Company shall make a lump sum cash payment to Executive sufficient to pay in full any federal, state and local income tax and social security or other employment tax on the reimbursements made with respect to Executive pursuant to Subsection (iv) in the immediately preceding calendar year and any additional taxes on such payment such that the net effect to Executive is as if the reimbursements made under Subsection (iv) were made on a tax-free basis.

(b) Non-Qualifying Termination. If during the Termination Period the employment of Executive terminates other than by reason of a Qualifying Termination, then the Company shall pay to Executive, on the thirtieth day following the Date of Termination, or if such day is not a business day, on the first business day that is at least ten days following the Date of Termination, the lump-sum cash amount described in Section 4(a)(i). The Company may make such additional payments, and provide such additional benefits, to Executive as the Company and Executive may agree in writing.

(c) Payments to Specified Employees. Notwithstanding any contrary provision, if the payment is scheduled to be made at the time that the stock of the Company is publicly traded on an established securities market or otherwise and the Executive is a Specified Employee, then no amount shall be paid to the Executive under Subsection (a)(i)-(iii) before the six-month anniversary of the Date of Termination (or, if earlier, the date of death of the Executive) and any amounts that would have been paid prior to the six-month anniversary of the Executive’s Date of Termination shall be accumulated and distributed (together with interest at the applicable federal rate as defined in Section 1274(d) of the Code) upon the six-month anniversary of the Date of

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Termination , or if such date is not a business day, on the first business day that follows such six-month anniversary; provided, however, if the Executive dies before the six-month anniversary of the Date of Termination, the payment will be made on the first business day following the date the Company has notice of such Executive’s death.

(d) Forfeiture or Recoupment of Benefit.

(1) General. If the Executive engages in any act or omission constituting misconduct, as that term is defined in Section 4(d)(2) below, the Company shall have the rights set forth in Section 4(d)(3) to cause the Executive to forfeit unpaid Plan benefits, or to require the Executive to pay back to the Company any Plan benefits that have already been paid to the Executive.

(2) Definition of Misconduct. For the purposes of this Section 4(d), the term “misconduct” shall mean any of the following events:

(A) The Company is required to prepare an accounting restatement due to material noncompliance, and the material noncompliance was due at least in part to the Executive’s acts or omissions;

(B) The Executive discloses to others, or uses for the Executive’s own purpose, any proprietary information or intellectual property (including customer lists, supplier lists, pricing and cost data, computer programs, advertising plans, wage or salary data, financial information, research and development plans, etc.) and all other types of information that the Company intends or expects to be kept secret, or which disclosure breaches any agreement that the Executive has entered into with the Company;

(C) The Executive, without the consent of the Company, directly or indirectly engages in, becomes employed by, or renders services, advice or assistance to any business in competition with the Company at any time during the twelve (12) month period following termination of employment with the Company, or violates any other non-compete agreement that the Executive has entered into with the Company;

(D) The Executive induces, or attempts to induce, directly or indirectly, any of the Company’s customers, employees, representatives or consultants to terminate working for the Company, or breaches any non-solicitation agreement that the Executive has entered into with the Company;

(E) The Executive fails to promptly return all documents and other tangible items belonging to the Company upon termination of employment with the Company;

(F) The Executive commits an act of embezzlement, fraud or theft with respect to the property of the Company;

(G) The Executive engages in any other act or omission not listed above which constitutes dishonesty, intentional breach of fiduciary obligation or intentional wrongdoing, and which results in substantial harm to the business or property of the Company.

(3) Forfeiture or Repayment of Benefits. Upon the Executive engaging in an act or omission constituting misconduct, the Company shall be entitled, in its sole discretion, to take the following actions:

(A) The Company may give notice to the Executive that some or all of the future unpaid Plan benefits otherwise to be paid to the Executive shall be forfeited by the Executive.

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(B) The Company may notify the Executive that the Executive must repay to the Company some or all of the Plan benefits previously paid to the Executive.

(C) The determination of whether the remedies in this Section 4(d)(3) shall be applied to any act or omission constituting misconduct by the Executive, and the amount of the forfeiture of future Plan benefits or the amount to be repaid to the Company by the Executive in such case, shall be made by the Company in its sole determination.

(D) The determination of the Company not to seek remedies against the Executive under this Section 4(d)(3) in any case of misconduct, or the determination of the Company not to seek the full amount of remedy available to it, shall not constitute a waiver as to any other case of misconduct by the Executive.

(E) The remedies under this Section 4(d)(3) may be enforced by any legal means available to the Company.

(4) Remedies Not Exclusive. The remedies set forth in this Section 4(d) shall not be the exclusive remedies available to the Company in the event of the Executive’s misconduct, and the Company shall not be precluded from taking any or all other actions against the Executive that may be available to it.

5. Limitation on Payments by the Company.

(a) In the event that any payment or benefit received or to be received by the Executive pursuant to the terms of this Agreement or in connection with or contingent upon a Qualifying Termination pursuant to any other agreement, plan or arrangement with the company or any of its subsidiaries (“Other Payments” and, together with the contract Payments, the “Payments”) would be subject to the Excise Tax imposed by section 4999 of the Code , then the Company shall make a payment to the Executive (the “Gross–Up Payment”) such that the net amount of Payments retained by the Executive shall be equal to the amount the Executive would have retained if none of such Payments were subject to the Excise Tax. In particular, the Gross-Up Payment shall be equal to the Excise Tax on the Payment, any interest penalties, or additions to tax payable by the Executive by reason of Executive’s filing income tax returns and making tax payments in a manner consistent with an opinion of tax counsel selected by the Company and reasonably acceptable to the Executive (“Tax Counsel”), and any federal, state and local income tax and Excise Tax upon the payments by the Company to you provided for this Section 5. Such Gross-Up Payment shall be made in a lump sum in the calendar year following the calendar year that includes the Date of Termination. Notwithstanding the foregoing provisions of this Section 5(a), in the event the amount of Payment subject to the Excise Tax exceeds the product (“Parachute Payment Limit”) of 2.99 and the Executive’s applicable “Base Amount” (as such term is defined for purposes of Section 4999 of the Code) by less than ten percent (10%) of the Executive’s annual base salary, (the “Safe Harbor Cap”) the Executive shall be treated as having waived such rights with respect to Payments designated by the Executive to the extent required such that the aggregate amount of Payments subject to the Excise Tax is less than the Parachute Payment Limit.

(b) Upon a Change in Control, the independent public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the “Accounting Firm”) shall determine whether the Payments would be subject to the Excise Tax absent reduction pursuant to Section 5(a) and, if so, shall determine the Safe Harbor Cap; provided, however, that in the event that the Accounting Firm is serving as accountant or auditor for the individual, entity

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or group effecting the Change in Control, the Company may appoint another nationally recognized public accounting firm to make such determinations (which accounting firm shall then be referred to as the Accounting Firm). If amounts payable pursuant to Section 4 are reduced to the Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to Executive that Executive is not required to report any Excise Tax on Executive’s federal income tax return. All fees, costs and expenses (including without limitation the costs of retaining experts) of the Accounting Firm shall be borne by the Company. Determinations by the Accounting Firm hereunder shall be binding upon the Company and Executive except as provided in Section 5(c) below.

(c) If it is established, pursuant to a final determination of a court or an Internal Revenue Service (“IRS”) proceeding that has been finally and conclusively resolved, that any amount has been paid to Executive by the Company pursuant to this Agreement in excess of the Safe Harbor Cap, such excess amount shall be deemed for all purposes to be a loan to Executive made on the date Executive received such amount, and Executive shall repay such amount to the Company on demand, together with interest thereon at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of Executive’s receipt thereof until the date of such repayment. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Accounting Firm’s determinations pursuant to Section 5(b), it is possible that an amount will not have been paid by the Company hereunder that should have been paid in accordance with Sections 4 and 5(a). In the event that the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return), the IRS or any court determines that this has occurred, the Company shall pay such amount to Executive in a lump sum in the second calendar year following the calendar year that includes the Date of Termination, together with interest thereon at the applicable federal rate from the date such amount would have been paid to Executive until the date of payment.

6. Withholding Taxes. The Company may withhold from all payments due to Executive (or his beneficiary or estate) hereunder all taxes that, by applicable federal, state, local or other law, the Company is required to withhold therefrom.

7. Scope of Agreement. Nothing in this Agreement shall be deemed to entitle Executive to continued employment with the Company or its Subsidiaries, and if Executive’s employment with the Company shall terminate prior to a Change in Control, Executive shall have no further rights under this Agreement (except as otherwise provided hereunder); provided, however, that any termination of Executive’s employment during the Termination Period shall be subject to all of the provisions of this Agreement.

8. Successors; Binding Agreement.

(a) This Agreement shall not be terminated by any Business Combination. In the event of any Business Combination, the provisions of this Agreement shall be binding upon the Surviving Corporation, and such Surviving Corporation shall be treated as the Company hereunder.

(b) The Company agrees that in connection with any Business Combination, it shall cause the Surviving Corporation unconditionally to assume (and any Parent Corporation of the Surviving Corporation to guaranty), by written instrument delivered to Executive (or his beneficiary or estate), all obligations of the Company hereunder. Failure of the Company to obtain such assumption and guaranty, prior to the effectiveness of any such Business Combination that constitutes a Change in Control, shall be a breach of this Agreement and shall constitute Good Reason hereunder.

(c) This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive dies while any amounts would be payable to Executive hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the

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terms of this Agreement to such person or persons appointed in writing by Executive to receive such amounts or, if no person is so appointed, to Executive’s estate.

9. Notice.

(a) For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed as follows:

If to Executive:	(Employee Name)
	(Employee Address)
If to the Company:	Caraustar Industries, Inc.
	P.O. Box 115
	5000 Austell Powder Springs Road
	Austell, Georgia 30106
	Attention: Chief Executive Officer

or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

(b) If Executive’s employment is terminated during the Termination Period for any reason other than death, the Company or Executive, as applicable, shall provide to the other written notice of Executive’s Date of Termination. Such notice shall (i) set forth in reasonable detail the facts and circumstances on which such termination is based, (ii) indicate whether such termination is for Cause, Good Reason or Disability or is other than for Cause, and (iii) specify the Date of Termination, which shall be not less than 15 nor more than 60 days after the giving of such notice except as specified in Section 1(e) with respect to Disability or unless, pursuant to Section 1(k), fewer than 15 days remain before the date of the actual Change in Control. The failure by Executive or the Company to set forth in such notice any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company hereunder or preclude Executive or the Company from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder.

10. Full Settlement; Resolution of Disputes. The Company’s obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall be in lieu and in full settlement of all other severance payments to Executive under any other severance or employment agreement between Executive and the Company and any severance plan of the Company. In no event shall Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement, and such amounts shall not be reduced as a result of Executive’s obtaining other employment.

11. Employment with Subsidiaries. Employment with the Company for purposes of this Agreement shall include employment with any Subsidiary.

12. Survival. The respective obligations and benefits afforded to the Company and Executive as provided in Sections 4 (to the extent that payments or benefits are owed as a result of a termination of employment that occurs during the term of this Agreement), 5 (to the extent that Payments are made to Executive as a result of a Change in Control that occurs during the term of this Agreement), 6, 8(c) and 10 shall survive the termination of this Agreement.

13. GOVERNING LAW; VALIDITY. THE INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NORTH CAROLINA WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. THE

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INVALIDITY OR UNENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT, WHICH OTHER PROVISIONS SHALL REMAIN IN FULL FORCE AND EFFECT.

14. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.

15. Miscellaneous. No provision of this Agreement may be modified or waived unless such modification or waiver is agreed to in writing and signed by Executive and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right Executive or the Company may have hereunder, including without limitation the right of Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. Except as otherwise specifically provided herein, the rights of, and benefits payable to, Executive, his estate or his beneficiaries pursuant to this Agreement are in addition to any rights of, or benefits payable to, Executive, his estate or his beneficiaries under any other employee benefit plan or compensation program of the Company.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of the Company and Executive has executed this Agreement as of the day and year first above written.

CARAUSTAR INDUSTRIES, INC.		EXECUTIVE
By:	/s/ Michael J. Keough
Its:	President and CEO

Dated: April 8, 2008 Dated:

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EX-10.03

Exhibit 10.03

CARAUSTAR INDUSTRIES, INC.

RESTORATION PLAN

This Plan, as established by Caraustar Industries, Inc. effective as of November 22, 1996, and as thereafter amended on February 7, 2002, August 11, 2005, October 13, 2005, November 7, 2005, and is further amended and restated April 8, 2008, retroactively effective to the 1st day of January 2005 for the primary purpose of complying with Section 409A of the Internal Revenue Code of 1986, as amended, and applicable Treasury or Internal Revenue Code guidance issued thereunder.

This document applies to persons separating from service after December 31, 2004.

ARTICLE 1 – PURPOSE OF PLAN

Section 1.1

Purpose: The purpose of this Plan is to provide supplemental retirement benefits to certain named Caraustar Industries, Inc. Executives. The benefits to be provided under this Plan are intended to supplement other retirement benefits provided by the Company through plans qualified under Section 401(a) of the Internal Revenue Code of 1986, nonqualified plans, and the federal Social Security system of the United States.

Section 1.2

Design: The Plan is designed to provide supplemental retirement benefits as described in Section 3.4 and is intended to be an unfunded plan providing deferred compensation for a select group of highly compensated or management employees.

ARTICLE 2 – DEFINITIONS

Section 2.1	Average Annual Compensation: The average of the Executive’s annual Compensation over the five (5) consecutive calendar years during the ten (10) most recent calendar years (including the calendar year in which the Executive’s Payment Event occurs) which produces the highest average, or, if the Executive has less than five (5) consecutive years of service, the average of the Executive’s annual Compensation for his or her full calendar years of Service.
Section 2.2	Beneficiary: The Spouse of the Executive as of his Payment Event. If the Spouse predeceases the Executive or the Executive has no Spouse, the beneficiary is the person designated by the Executive to be the beneficiary in such event, or the Executive’s estate if no person has been designated by the Executive as the beneficiary.
Section 2.3	Board: The Board of Directors of Caraustar Industries, Inc.

Section 2.4	Calculation Date: With respect to any Executive, the date on which his Payment Event occurs.
Section 2.5	Change-In-Control: means the occurrence of any one of the following events provided such event also constitutes a “change in control” within the meaning of Section 409A:
	(a)     individuals who, on the date hereof, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election or nomination for election was approved by a vote of at least two thirds (2/3) of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director;
	(b)     any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the “Exchange Act”) and in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, that such event shall not be deemed to be a Change in Control by virtue of any acquisition of Company Voting Securities (A) by the Company or any Subsidiary, (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in Section 2.5(c)), (E) pursuant to any acquisition by an Executive or any group of persons including Executive (or any entity controlled by an Executive or by any group of persons including Executive); or (F) pursuant to or in connection with a transaction (other than a Business Combination) in which Company Voting Securities are acquired from the Company, if a majority of the Incumbent Directors approve a resolution providing expressly that such transaction does not constitute a Change in Control under this Section 2.5(b);
	(c)     the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company’s shareholders, whether for such transaction or for an issuance of securities in or in connection with the transaction (a “Business Combination”), unless immediately following such Business Combination (A) more than 50% of the total voting power of the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities

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	eligible to elect directors of the Surviving Corporation (the “Parent Corporation”) or, if there is no Parent Corporation, the corporation resulting from such Business Combination (the “Surviving Corporation”), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan or related trust sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 25% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination (any Business Combination that satisfies all of the criteria specified in clauses (A), (B) and (C) above shall be deemed to be a “Non-Qualifying Transaction”); or
	(d)     the Company acts upon a plan of complete liquidation or dissolution of the Company approved by the shareholders of the Company or effects a sale of all or substantially all of the Company’s assets approved by the shareholders of the Company.
	Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 25% of the Company Voting Securities as a result of an acquisition or a series of acquisitions of Company Voting Securities by the Company that reduces the number of Company Voting Securities outstanding; however, if such person thereafter becomes the beneficial owner of additional Company Voting Securities that increase the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then be deemed to occur.
Section 2.6	Code: The Internal Revenue Code of 1986, as amended, or as it may be amended from time to time.
Section 2.7	Company: Caraustar Industries, Inc.
Section 2.8	Compensation: Wages as defined in Section 3401(a) of the Code for the purposes of income tax withholding at the source but determined without regard to any rules that limit the remuneration included in wages based on the nature or

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	location of the employment or the services performed (such as the exception for agricultural labor in Section 3401(a)(2)), reduced by all of the following items (even if includible in gross income): reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation, and welfare benefits. Compensation shall also include any amount which is contributed by the Company pursuant to a salary reduction agreement and which is not includible in the Executive’s gross income under Sections 125, 402(e)(3), 402(h), or 403(b) of the Code.
Section 2.9	Compensation and Employee Benefits Committee: The Compensation and Employee Benefits Committee as established by the Board.
Section 2.10	Covered Compensation: For the Executive, the amount determined for the calendar year in which he attains or will attain his Social Security Retirement Age using the Covered Compensation Table in Internal Revenue Service Revenue Ruling 93-20 (or any successor table as updated and issued by the Internal Revenue Service from time to time) as in effect for the calendar year in which his employment with the Employer terminates. No increase in Covered Compensation shall decrease the Executive’s amount of benefits under this Plan after his Calculation Date.
Section 2.11	Early Retirement Adjustment Factor:

Age Benefit Begins	Factor	Age Benefit Begins	Factor
64	.9231	59	.6538
63	.8462	58	.6154
62	.7692	57	.5769
61	.7308	56	.5292
60	.6923	55	.4862

	The Early Retirement Adjustment Factors are interpolated for retirement at an age in between whole ages.
Section 2.12	Early Retirement Age: The age of the Executive on the first date upon which the Executive both has attained age fifty-five (55) and has completed ten (10) or more years of Vesting Service as defined in the Retirement Plan.
Section 2.13	Employee: A participant in the Caraustar Industries, Inc. Retirement Plan or in the Caraustar Industries, Inc. Employees’ Savings Plan.
Section 2.14	Executive: A participant in the Plan as appointed by the Chief Executive Officer, upon receiving approval from the Compensation and Employee Benefits Committee.
Section 2.15	Final Average Compensation: The average annual Compensation for the three (3) consecutive calendar years in which the Executive was employed by the

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	Company immediately preceding his Payment Event excluding the calendar year in which his Payment Event occurs, or, if the Executive’s entire period of service with the Employer is less than three (3) consecutive calendar years, the average of this annual Compensation for his full calendar years of Service. For purposes of this Section, Compensation for any year in excess of the taxable wage base in effect at the beginning of such year shall not be taken into account.
Section 2.16	Hour of Service: Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Company as an Employee during any period of employment.
Section 2.17	Normal Retirement Age: Age sixty-five (65).
Section 2.18	Normal Retirement Date: The first day of the month coincident with or next following the date the Executive attains his Normal Retirement Age.
Section 2.19	Payment Event: With respect to any Executive, the first to occur of his Retirement Date, death, the date he Separates from Service as a result of a Total and Permanent Disability, or a Change-In-Control.
Section 2.20	Plan: The “Caraustar Industries, Inc. Restoration Plan”, as set forth herein or in any amendment hereto.
Section 2.21	Plan Administrator: The individual or committee appointed pursuant to Article 7 of the Retirement Plan, who shall have the same powers and those duties with respect to the Plan as those described in Article 7 of the Retirement Plan. The Plan Administrator is the named fiduciary for purposes of the Employee Retirement Income Security Act of 1974 as amended.
Section 2.22	Plan Year: The calendar year.
Section 2.23	Retirement Benefit: The Accrued Benefit determined in Section 3.1 multiplied by the Early Retirement Adjustment Factor if the Retirement Date precedes the Normal Retirement Date.
Section 2.24	Retirement Date: The first day of the month coincident with or next following the date the Executive attains his Early Retirement Age or Normal Retirement Age and actually terminates employment with the Company; provided, that a termination will not be treated as the Executive’s Retirement Date unless it constitutes a “separation from service” within the meaning of Code Section 409A.
Section 2.25	Retirement Plan: The Caraustar Industries, Inc. Retirement Plan for the Employees of Caraustar Industries, Inc., as amended from time to time.
Section 2.26	Section 409A: Section 409A of the Code and applicable Treasury or Internal Revenue Service guidance issued thereunder.

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Section 2.27	Service: An Employee shall be credited with one (1) year of Service for each Plan Year during which he completes one thousand (1,000) or more Hours of Service with the Company. An Employee shall also be credited with Service solely for purposes of determining his Accrued Benefit under Section 3.1 (but not for purposes of vesting under Section 3.4) for employment with an employer other than the Company provided the Chief Executive Officer makes a qualifying recommendation and such recommendation is endorsed by the Board’s Compensation and Employee Benefits Committee.
Section 2.28	Separation from Service: A “separation from service” within the meaning of Section 409A.
Section 2.29	Specified Employee: An Executive or a former Executive shall be a specified employee if on any date in the applicable period, he is an employee of the Company or any affiliate of the Company that would be consider a single employer with the Company under Section 414(a) or (b) of the Internal Revenue Code of 1986, as amended, (the “Code”) who was a “key employee” within the meaning of Section 416(i) of the Code (without regard to paragraph (5) thereof) at any time during the 12-month period ending on the identification date. For the period beginning January 1, 2005 and ending March 30, 2006, the identification date is December 31, 2004. Thereafter, the applicable period is each 12-month period beginning on April 1, 2006 and each subsequent April 1 and the identification date for each such period is the immediately preceding December 31. For example, for the period beginning April 1, 2006, the identification date is December 31, 2005. Specified Employees shall be determined in accordance with Code Section 409A.
Section 2.30	Spouse: The individual to whom the Executive is legally married as of the earlier of the Executive reaching his Retirement Date, suffering a Total and Permanent Disability (as defined in Article 1 of the Retirement Plan and in accordance with a determination made by the Social Security Administration), death, or upon the Change-In-Control of the Company.
Section 2.31	Total and Permanent Disability: The event shall have the meaning specified in Article 1 of the Retirement Plan, but limited to Social Security Administration approved disability; provided, that no event shall constitute a Total and Permanent Disability unless it meets the definition of “disability” in Code Section 409A(a)(2)(C).

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ARTICLE 3 – BENEFITS

Section 3.1	Accrued Benefit: The Accrued Benefit is an annual amount payable in the form of a Life Annuity, calculated as of the Executive’s Calculation Date, equal to the product of (a) times (b) minus (c) where:
	(a)     Is 1.35% of Average Annual Compensation times years of Service projected to Normal Retirement Date, offset by .65% of Final Average Compensation up to Covered Compensation times years of Service projected to Normal Retirement Date, and
	(b)     Is a fraction where the numerator is years of Service as of the Calculation Date and the denominator is the greater of years of Service as of the Calculation Date or years of Service projected to Normal Retirement Date, and
	(c)     Is the Executive’s accrued benefit under the Retirement Plan as of the Calculation Date, the accrued benefit under any Company paid deferred compensation arrangements as of the Calculation Date other than the Caraustar Industries, Inc. Employees’ Savings Plan (the Caraustar 401(k) Plan), and/or any other accrued benefit payable through another employer’s qualified defined benefit plan as of the Calculation Date by which the Executive has obtained additional years of Service. Notwithstanding the above, the Executive’s accrued benefit is also reduced by the actuarial equivalent of a hypothetical benefit account based on accumulating the Executive’s service-weighted retirement contributions under the Caraustar’s 401(k) Plan with interest using for each calendar year the 10-year Treasury Bond constant maturity rate, monthly average yield for the December preceding such year. Actuarial equivalence for this purpose will be on the same basis used for the optional forms of payment herein. If a benefit of another employer is offset hereunder and is not in the form of a Life Annuity payable at age 65, Caraustar’s actuary shall determine the equivalent Life Annuity at age 65 for the purpose of determining the offset amount.
Section 3.2	Forms of Benefit Payment and Election Requirements:
	(a)     Normal Form of Payment: Unless otherwise elected, the form of benefit payment for a Retirement Payment under Section 3.4(a)(1) or Disability Payment under Section 3.4(a)(2) shall be a 5-Year Certain Annuity. The 5-Year Certain Annuity is equal to the actuarial equivalent of the Retirement Benefit. The benefits under a 5-Year Certain annuity are payable in 60 monthly installments to the Executive while the Executive is alive and continuing to the Beneficiary for the balance of the 60 payments remaining after the death of the Executive. The amount benefit under this Normal Form of Payment and the rules for payments after the death of the Executive or the Executive’s Beneficiary will be determined in the same manner as described below for a 10-Year Certain Annuity.
	The normal form of payment for a Death Payment shall be a Life Annuity. The normal form of payment for a Change-In-Control Payment shall be a lump sum.

7

(b)     Optional Forms: In lieu of the Normal Form, the Executive may elect to receive his Retirement Payment under Section 3.4(a)(1) in any of the following optional forms of payment. The Disability Payment under Section 3.4(a)(2) shall be paid in the same form of payment elected for the Retirement Payment. The optional forms of payment are:

(1)     10-Year Certain Annuity: The 10-Year Certain Annuity is the actuarial equivalent benefit of the Retirement Benefit. The 10-Year Certain Annuity is payable in 120 monthly installments to the Executive while the Executive is alive and continuing to the Executive’s Beneficiary for the balance of the 120 payments remaining after the death of the Executive. Such actuarial equivalent shall be determined using the mortality table prescribed in Rev. Rul. 2001-62 and the interest rate most recently used as of the benefit commencement date (or the date that would be the benefit commencement date except for Plan Section 3.4(b)) to discount this Plan’s liabilities for FAS 87 purposes.

If the Beneficiary who is receipt of monthly payments by reason of the Executive’s death, dies before a total of 120 monthly payments have been paid to the Executive and the Beneficiary, then the present value of the remaining payments (determined using the interest rate most recently used to discount this Plan’s liabilities for FAS 87 purposes) will be paid to the Beneficiary’s estate. If the Executive’s named Beneficiary predeceases the Executive, and the Executive dies before a total of 120 monthly payments have been made to the Executive, the present value of the remaining payments (determined using the interest rate most recently used to discount this Plan’s liabilities for FAS 87 purposes) will be paid to the Executive’s estate.

(2)     Life Annuity: Equal to the Retirement Benefit payable monthly for the life of the Executive.

(3)     Joint and 50% Survivor Annuity Survivor Annuity: Equal to the actuarial equivalent of the Retirement Benefit (using the mortality table prescribed in Rev. Rul. 2001-62 and the interest rate most recently used to discount this Plan’s liabilities for FAS 87 purposes) payable monthly for the life of the Executive with a survivor annuity of half of such amount continuing for the life of the Spouse following the death of the Executive.

(4)     Joint and 100% Survivor Annuity Survivor Annuity: Equal to the actuarial equivalent of the Retirement Benefit (using the mortality table prescribed in Rev. Rul. 2001-62 and the interest rate most recently used to discount this Plan’s liabilities for FAS 87 purposes) payable monthly for the life of the Executive with a

8

	survivor annuity equal to the amount that the Executive was receiving with such amount continuing for the life of the Spouse following the death of the Executive.
	(c)     If the Executive elects a Joint and 50% Survivor Annuity and the Executive’s Spouse dies prior to the Executive’s commencement of benefits, his benefit automatically will be paid in a Life Annuity.
	(d)     Executive’s benefit will commence on his Retirement Date. Notwithstanding the above, the Executive may elect as provided in paragraph (e) below to have his benefits commence on his Normal Retirement Date. In such case the Executive’s benefit will be computed without adjustment for early retirement.
	(e)     The Executive’s election as to form of payment and the time of payment must be made in writing no later than 30 days after first becoming eligible to participate in this Plan.
	Notwithstanding the above, an Executive may make a new election during 2007 or 2008; provided, that the Executive cannot make an election in either of these years that would either cause payments to be made to him in such year that would not otherwise have been made in that year, or that would postpone any payments that would otherwise be made to him in such year to a later year.
	An Executive who has made an election under this paragraph (e) may change such election as long as change is made not later than the last day permitted for making such election.
	(f)      No Change in Election Permitted After Deadline for Elections: Except as otherwise provided in paragraph (e), once an Executive makes an election, such election may not be changed..
Section 3.3	Forfeiture or Recoupment of Benefit:
	(a)     General: If the Executive engages in any act or omission constituting misconduct, as that term is defined in subsection (b) below, the Company shall have the rights set forth in subsection (c) to cause the Executive to forfeit unpaid Plan benefits, or to require the Executive to pay back to the Company any Plan benefits that have already been paid to the Executive.
	(b)     Definition of Misconduct: For the purposes of this Section 3.3, the term “misconduct” shall mean any of the following events:
	(1)     The Company is required to prepare an accounting restatement due to material noncompliance, and the material noncompliance was due at least in part to the Executive’s acts or omissions;

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(2)     The Executive discloses to others, or uses for the Executive’s own purpose, any proprietary information or intellectual property (including customer lists, supplier lists, pricing and cost data, computer programs, advertising plans, wage or salary data, financial information, research and development plans, etc.) and all other types of information that the Company intends or expects to be kept secret, or which disclosure breaches any agreement that the Executive has entered into with the Company;

(3)     The Executive, without the consent of the Company, directly or indirectly engages in, becomes employed by, or renders services, advice or assistance to any business in competition with the Company at any time during the twelve (12) month period following termination of employment with the Company, or violates any other non-compete agreement that the Executive has entered into with the Company;

(4)     The Executive induces, or attempts to induce, directly or indirectly, any of the Company’s customers, employees, representatives or consultants to terminate working for the Company, or breaches any non-solicitation agreement that the Executive has entered into with the Company;

(5)     The Executive fails to promptly return all documents and other tangible items belonging to the Company upon termination of employment with the Company;

(6)     The Executive commits an act of embezzlement, fraud or theft with respect to the property of the Company;

(7)     The Executive engages in any other act or omission not listed above which constitutes dishonesty, intentional breach of fiduciary obligation or intentional wrongdoing, and which results in substantial harm to the business or property of the Company.

(c)     Forfeiture or Repayment of Benefits: Upon the Executive engaging in an act or omission constituting misconduct, the Company shall be entitled, in its sole discretion, to take the following actions:

(1)     The Company may give notice to the Executive that some or all of the future unpaid Plan benefits otherwise to be paid to the Executive shall be forfeited by the Executive.

(2)     The Company may notify the Executive that the Executive must repay to the Company some or all of the Plan benefits previously paid to the Executive.

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	(3)     The determination of whether the remedies in this subsection (c) shall be applied to any act or omission constituting misconduct by the Executive, and the amount of the forfeiture of future Plan benefits or the amount to be repaid to the Company by the Executive in such case, shall be made by the Company in its sole determination.
	(4)     The determination of the Company not to seek remedies against the Executive under this subsection (c) in any case of misconduct, or the determination of the Company not to seek the full amount of remedy available to it, shall not constitute a waiver as to any other case of misconduct by the Executive.
	(5)     The remedies under this subsection (c) may be enforced by any legal means available to the Company.
	(d)     Remedies Not Exclusive: The remedies set forth in this Section 3.3 shall not be the exclusive remedies available to the Company in the event of the Executive’s misconduct, and the Company shall not be precluded from taking any or all other actions against the Executive that may be available to it.
Section 3.4	Benefit Payments:
	(a)     If a Payment Event occurs with respect to the Executive while he is employed with the Company, then he (or his Beneficiary) shall be entitled to receive benefits as follows:
	(1)     Retirement Payment: In the event that an Executive Separates from Service on or after his Early Retirement Age or Normal Retirement Age, the Executive will be paid a Retirement Benefit payable as of the Executive’s Retirement Date or, if so elected, his Normal Retirement Date, adjusted according to the form of payment elected by the Executive. If benefits are payable before the Executive’s Normal Retirement Age, such benefits shall be reduced for early commencement by multiplying the accrued benefit by the Early Retirement Adjustment Factors based on the Executive’s age on the date of commencement.
	(2)     Disability Payment: In the event that an Executive Separates from Service as a result of a Total and Permanent Disability and such disability occurs prior to the Executive’s Early or Normal Retirement Date, a Retirement Benefit will be payable as of the first day of the month coincident with or next following the second anniversary of the date the Executive Separates from Service; provided, however, that an Executive may elect at least one year in

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advance of the second anniversary of the date he Separates from Service to defer receipt of such benefit until the first day of the month coincident with or next following the later of the seventh anniversary of the date the Executive Separates from Service or his Normal Retirement Age, but such election to defer receipt of benefits shall not be effective for twelve (12) months after the date such election is made. The form of payment shall be the same form of payment that is applicable for a Retirement Payment.

If disability benefits are payable before the Executive’s Normal Retirement Age, such benefits shall be reduced for early commencement by multiplying the accrued benefit by the Early Retirement Adjustment Factors based on the Executive’s age on the date of commencement. If the Disability Payment commences before age 55, then the benefit shall be further reduced by 1/360th for each month that the Executive’s age on date of commencement precedes age 55.

If a disabled Executive recovers from disability before his Normal or Early Retirement Age, then any disability benefits he is receiving shall cease.

(3)     Death Payment: In the event that the Executive dies before his or her Retirement Date, has five (5) or more years of Service, and has been married for at least one year prior to his death, the Spouse shall receive a Life Annuity the monthly benefit under which is equal to 50% of the monthly amount that would have been payable to the Executive under the Joint and 50% Survivor Annuity form and such amount shall be payable as of the first day of the month coincident with or next following the later of the Executive’s death or the date on which the Executive would have reached age 55. If the Spouse benefits commence before the Executive’s Normal Retirement Date, they will be reduced according to the Early Retirement Adjustment Factor based on the Executive’s age (or age the Executive would have been had he survived) on the date of benefit commencement.

If the Executive dies on or after his Retirement Date and before his benefits commence, the benefits will be paid according to the form of payment applicable to the Executive.

(4)     Change-In-Control: Except as provided in Section 3.3, in the event that there is a Change-In-Control of the Company, the Executive shall become fully vested and receive an immediate lump-sum distribution on the date that is thirty (30) days after the Change in Control or, if such date is not a business day, on the immediately following business day, and the Plan shall terminate after each

12

	such Executive has been paid. The lump sum distribution shall be equal to the greater of (i) the present value of the Retirement Benefit payable in a Life Annuity calculated as of the Payment Event, or (ii) the present value of the Accrued Benefit deferred to Normal Retirement Age; with such present values being determined using the actuarial equivalent definition for lump sum payments in the Retirement Plan, including the mortality table and interest rate specified therein.
	(b)     Delay for Specified Employees: Notwithstanding the above provisions of this Section 3.4, if the Executive is a Specified Employee at the time of the Payment Event, the commencement of his Retirement Payments or Disability Payments shall be delayed for a period of six months following the Executive’s date of Separation from Service. After the passage of this six-month period, the first payment thereafter shall include any payments that were missed during the six-month delay plus interest at the same interest rate used to determine an optional form of payment under this Plan as of the date of the Executive’s Separation from Service. Should the Executive die during the six-month period, any death payments under this Plan are not subject to the six-month delay rule of this paragraph.
	(c)     No Hardship: No hardship withdrawals shall be permitted from this Plan.
Section 3.5	Mental or Legal Incompetence: The Company, in its sole discretion, may make distribution to the guardian or other legal representative of the Executive or Beneficiary, if the Executive or Beneficiary is determined by a court of proper jurisdiction to be mentally or legally incompetent to receive such benefit distribution. Any such distribution shall be in full and complete satisfaction of any and all claims whatsoever by or on behalf of such Executive under this Plan against the Company, the Plan Administrator, any member of the Board, other Executives or officers of the Company, other employees, shareholders and any other person acting on behalf of them.

ARTICLE 4 – MISCELLANEOUS

Section 4.1

Amendment or Termination: The Chief Executive Officer, upon receiving approval from the Compensation and Employee Benefits Committee, shall have the right to amend this Plan from time to time and to terminate this Plan at any time; provided, however, no such action shall reduce the Accrued Benefit, as of the date of such action, of any Executive whose benefits hereunder are vested, or defer the time for paying such benefits under Section 3.4.

Section 4.2

Company Liability: Nothing in this Plan shall be construed to limit in any way the right of the Company to terminate the employment of the Executive at any time; or to be evidence of any agreement or understanding, express or implied, that the Company or any affiliate company will employ the Executive in any particular position or at any particular rate or remuneration or for any particular period of time.

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Section 4.3	Indemnification: The Company shall indemnify and hold harmless the Administrator, any member thereof and any employee who may act on behalf of the Company in the administration of this Plan from and against any liability, loss, cost or expense (including reasonable attorneys’ fees) incurred at any time as a result of or in connection with any claims, demands, actions or causes of action of the Executive, any person claiming through or under any of them, or any other person, party or authority claiming to have an interest in this Plan or standing to act for any persons or groups having an interest in this Plan, for or on account of, any of the acts or omissions (or alleged acts or omissions) of the Administrator, any member thereof or any such employee, except to the extent resulting from such person’s willful misconduct.
Section 4.4	Tax Effects: The Company makes no warranties or representations with regard to the tax effects or results of this Plan. The Executive participating under this Plan shall be deemed to have relied upon his own tax advisors with regard to such effects.
Section 4.5	No Assignment; Binding Effect: Neither the Executive nor Beneficiary shall have the right to alienate, assign, commute or otherwise encumber his benefit for any purpose whatsoever, and any attempt to do so shall be disregarded completely as null and void. The provisions of this Plan shall be binding on the Executive and on each person who claims a benefit under him and on the Company.
Section 4.6	Self-Interest: The Executive shall not have any right to vote or decide upon any matter related directly or indirectly to him or any right to claim any benefit under this Plan.
Section 4.7	Claims Procedures: The claims procedures shall be the same as under the Retirement Plan.
Section 4.8	Construction: This Plan shall be construed in accordance with the laws of the State of Georgia. The headings and subheadings in this Plan have been inserted for convenience of reference only and are to be ignored in construction of the provisions of this Plan. In the construction of this Plan, the masculine shall include the feminine and the singular the plural wherever appropriate.

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IN WITNESS WHEREOF, the Company has caused its duly authorized officers to execute and seal this Plan as of this 8th day of April, 2008.

PLAN SPONSOR:
CARAUSTAR INDUSTRIES, INC.
By:	/s/ Barry A. Smedstad
Title:	Vice President, Human Resources

(CORPORATE SEAL)
Attest:	/s/ Marinan R. Mays
Title:	Corporate Director Benefits

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APPENDIX A

(The following provisions are applicable only to Thomas V. Brown and will supersede any respective provisions in the main document unless otherwise specified in this Appendix A. Any other provisions in the main document that have not been superseded by this Appendix A Shall also apply to Mr. Brown.)

Section 2.4	Calculation Date: June 1, 2005.
Section 2.22	Retirement Date: July 1, 2005
Section 2.23	Retirement Plan: The Caraustar Industries, Inc. Retirement Plan for Employees of Caraustar Industries, Inc. or the Smurfit Stone Pension Plan as amended from time to time.
Section 2.24	Service: A period of employment beginning on December 7, 1962 and ending on the Employee’s Severance from Service.
Section 2.24.1	Social Security Benefit: The annual old-age or disability insurance benefit of an Employee under Title II of the Social Security Act as in effect on the date he retires or otherwise terminates employment to which the Employee is or, upon proper application, would be entitled at his Normal Retirement Age, disregarding the effect on actual entitlement of any earnings of the Employee (generally known as the “retirement test”). The Social Security Benefit shall be computed on the assumption that the Employee will receive no income after termination of employment, or Normal Retirement Age, if earlier, which would be treated as wages for purposes of the Social Security Act.
Section 3.1	Accrued Benefit: The Accrued Benefit is an annual amount of $309,338.16, expressed as a single life annuity, calculated as of the Executive’s Calculation Date, equal to the product of (A) times (B) minus (C) below, but not less than the Accrued Benefit determined under Section 3.1 of the main document.
	(A)    is 1.5% of Average Annual Compensation offset by 1.5% of the Social Security Benefit, and
	(B)    is years of Service (including a fraction for completed months) as of the Calculation Date, and
	(C)    is the Accrued Benefit under all Retirement Plans as of the Calculation Date and the accrued benefit under any Company paid deferred Compensation arrangements as of the Calculation Date.
Section 3.3	Benefit Payments:
	(a)     If a Payment Event occurs with respect to an Executive while an Executive is employed with the Company, and if such Executive’s benefits hereunder are vested, then the Executive will receive his benefits

16

under a Fifty Percent (50%) Joint and Survivor Annuity, paid in monthly payments, with the initial annual amount being 90% of the Executive’s Accrued Benefit, and with a 10-year guaranteed period (meaning that if the Executive dies less than 10 years after the commencement of the annuity payments, the Executive’s spouse or alternate Beneficiary will nevertheless receive the initial annual amount of the annuity [ninety percent (90%) of the Accrued Benefit]).

(b)     Notwithstanding the above provisions of this Section 3.4, if the Executive is a Specified Employee at the time of the Payment Event, commencement of his Retirement Payments shall be delayed until January 1, 2006.

(c)     On or after January 1, 2006, subject to the provisions of Section 3.2, the Executive shall receive an initial payment of $162,402.52, which amount includes the aggregate of the prior six months of deferred payments since Mr. Brown’s June 1, 2005 retirement, including interest thereon at the interest rate most recently used to discount plan liabilities for FAS 87 purposes, and his regularly scheduled monthly payment of $23,200.36.

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EX-10.35

Exhibit 10.35

ASSET PURCHASE AGREEMENT

by and among

2789737 MANITOBA LTD.

and

CARAUSTAR INDUSTRIAL CANADA, INC.

Dated December 20, 2007

TABLE OF CONTENTS

ARTICLE I DEFINITIONS; INTERPRETATION		1
1.1	Definitions.	1
1.2	Interpretation	9
ARTICLE II SALE AND TRANSFER OF ASSETS; CLOSING; PURCHASE PRICE		10
2.1	Assets to be Sold	10
2.2	Excluded Assets	11
2.3	Consideration.	12
2.4	Liabilities.	12
2.5	Allocation	12
2.9	Closing.	13
2.10	Closing Obligations.	13
2.11	Purchase Price Adjustment.	15
2.12	Consents	16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER		17
3.1	Organization and Good Standing	17
3.2	Enforceability; Authority; No Conflict	17
3.3	Financial Statements.	18
3.4	Books and Records.	18
3.5	Sufficiency of Assets.	18
3.6	Description of Owned Real Property	18
3.7	Description of Leased Real Property.	18
3.8	Title to Assets; Encumbrances	18
3.9	Condition of Facilities	19
3.10	Accounts Receivable	19
3.11	Inventories.	19
3.12	No Undisclosed Liabilities	20
3.13	Taxes	20
3.14	No Material Adverse Change	21
3.15	Employee Benefits	21
3.16	Compliance with Legal Requirements; Governmental Authorizations.	21
3.17	Legal Proceedings; Orders	23
3.18	Absence of Certain Changes and Events.	24
3.19	Contracts; No Defaults	24
3.20	Insurance	25
3.21	Environmental Matters	26
3.22	Employees	27
3.23	Labor Disputes; Compliance	27
3.24	Intellectual Property Assets.	28
3.25	Relationships with Related Persons.	30
3.26	Brokers or Finders	30
3.27	Solvency	30
3.28	Disclosure.	30
3.30	GST Registration.	31
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER		31
4.1	Organization and Good Standing	31
4.2	Authority; No Conflict	31
4.3	Certain Proceedings.	32
4.4	Brokers or Finders	32

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ARTICLE V CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE		32
5.1	Accuracy of Representations.	32
5.2	Seller’s Performance	32
5.3	Consents	32
5.4	Additional Documents.	32
5.5	No Proceedings.	33
5.6	No Conflict.	33
5.7	Governmental Authorizations	33
5.8	No Material Adverse Effect.	33
ARTICLE VI CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO CLOSE		33
6.1	Accuracy of Representations.	33
6.2	Buyer’s Performance.	33
6.3	Consents	34
6.4	Additional Documents.	34
6.5	No Proceedings or Injunctions	34
ARTICLE VII ADDITIONAL COVENANTS		34
7.1	Employees and Employee Benefits	34
7.2	Payment of Other Retained Liabilities	35
7.3	Restrictions on Seller Dissolution and Distributions.	36
7.4	Removing Excluded Assets.	36
7.5	Reports and Returns	36
7.6	Customer and Other Business Relationships.	36
7.7	Retention of and Access to Records.	36
7.8	Prorations	37
7.9	Further Assurances	37
7.10	Excluded Accounts Receivable	37
7.11	Operation in the Ordinary Course	37
7.12	Negative Covenants.	37
7.13	Access and Investigation	37
7.14	Exclusivity.	37
ARTICLE VIII INDEMNIFICATION		38
8.1	SURVIVAL.	38
8.2	Indemnification and Reimbursement by Seller	38
8.3	Indemnification and Reimbursement by Buyer.	39
8.4	Limitations on Amount – Seller	39
8.5	Limitations on Amount – Buyer.	39
8.6	Time Limitations on Survival of Representations Warranties and Covenants.	40
8.7	Third-Party Claims	40
8.8	Other Claims.	42
8.10	Quantification of Damages.	42
8.11	Right of Set-Off.	42
ARTICLE IX CONFIDENTIALITY		42
9.1	Definition of Confidential Information	42
9.2	Restricted Use of Confidential Information	43
9.3	Exceptions	44
9.4	Legal Proceedings	44
9.5	Attorney-Client Privilege	44
ARTICLE XI TERMINATION		44
10.1	Termination Events	44
10.2	Effect of Termination	45

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ARTICLE XI GENERAL PROVISIONS		45
11.1	Expenses.	45
11.2	Public Announcements.	45
11.3	Notices.	46
11.4	Jurisdiction; Service of Process.	47
11.5	Enforcement of Agreement	47
11.6	Waiver; Remedies Cumulative.	47
11.7	Entire Agreement and Modification.	47
11.8	Schedules.	48
11.9	Assignments, Successors and No Third-Party Rights	48
11.10	Severability.	48
11.11	Construction	48
11.12	Time of Essence	48
11.13	Governing Law.	48
11.14	Execution of Agreement.	48

Exhibits
Exhibit 2.10(a)(i)	Bill of Sale
Exhibit 2.10(a)(ii)	Assignment and Assumption Agreement
Exhibit 2.10(a)(iii)	Plant Lease Agreement
Exhibit 2.10(a)(iv)	Intellectual Property Assignment Agreement
Exhibit 2.10(a)(vi)	Noncompetition Agreements
Exhibit 2.10(xiii)	Riguidel Employment Agreement
Exhibit 2.10(xiv)	Clarke Consulting Agreement
Exhibit 2.10(xv)	Personal Guaranty Agreement
Exhibit 5.4(a)	Legal Opinion of Counsel to Seller
Schedules
Schedule 2.1(a)	Tangible Personal Property
Schedule 2.1(i)	Seller’s Claims
Schedule 2.2(d)	Excluded Assets; Deposits, Etc.
Schedule 2.2(f)	Seller Contracts
Schedule 2.2(k)	Excluded Property and Assets
Schedule 2.4(a)	Liabilities of Seller
Schedule 2.5	Purchase Price Allocation
Schedule 3.2(b)	No Conflict
Schedule 3.2(c)	Consents
Schedule 3.5	Sufficiency of Assets
Schedule 3.6	Description of Owned Real Property
Schedule 3.7	Description of Leased Real Property
Schedule 3.8(a)	Real Estate Encumbrances
Schedule 3.8(b)	Non-Real Estate Encumbrances
Schedule 3.9(b)	Condition of Facilities
Schedule 3.10	Accounts Receivable
Schedule 3.11	Inventories
Schedule 3.12	No Undisclosed Liabilities
Schedule 3.13(a)	Tax Returns Filed and Taxes Paid
Schedule 3.13(b)	Delivery of Tax Returns and Information Regarding Audits and Potential Audits
Schedule 3.15(a)	Employee Benefit Plans

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Schedule 3.16(a)	Compliance with Legal Requirements
Schedule 3.16(b)	Governmental Authorizations
Schedule 3.16(c)	Work Orders and Deficiencies
Schedule 3.17(a)	Legal Proceedings
Schedule 3.17(b)	Orders
Schedule 3.17(c)	Compliance with Orders
Schedule 3.18	Absence of Certain Changes and Events
Schedule 3.19(a)	Contracts
Schedule 3.19(b)	Contract Assignment
Schedule 3.19(c)	No Defaults
Schedule 3.20	Insurance
Schedule 3.21	Environmental Matters
Schedule 3.22(a)	Employee Information
Schedule 3.23(b)	Labor Disputes; Compliance
Schedule 3.24(b)	Seller Contracts Relating to Intellectual Property Assets
Schedule 3.24c)	Ownership of Intellectual Property Assets, Etc.
Schedule 3.24(d)	Patents
Schedule 3.24(e)	Marks
Schedule 3.24(h)	Net Names
Schedule 3.25	Relationships with Related Persons
Schedule 5.3	Material Consents
Schedule 6.3	Buyer’s Consents
Schedule 7.1(b)	Severance Employees

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ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (“Agreement”) is dated December 20, 2007 by and between CARAUSTAR INDUSTRIAL CANADA, INC., a Nova Scotia corporation (“Buyer”), and 2789737 MANITOBA LTD. d/b/a MAYERS FIBRE TUBE & CORE, a Canadian-controlled private corporation (“Seller”);

RECITALS

WHEREAS, Buyer desires to purchase, and Seller desires to sell, the Assets of Seller for the consideration and pursuant to the terms and conditions set forth in this Agreement;

NOW, THEREFORE, for and in consideration of the mutual premises and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged conclusively, the parties, intending to be legally bound, agree as follows:

ARTICLE I

DEFINITIONS; INTERPRETATION

1.1 Definitions.

For purposes of this Agreement, the following terms and variations thereof have the meanings specified or referred to in this Section 1.1:

“Accounts Receivable” means (a) all trade accounts receivable and other rights to payment from customers of Seller and the full benefit of all security for such accounts or rights to payment, including all trade accounts receivable representing amounts receivable in respect of goods shipped or products sold or services rendered to customers of Seller, and (b) any claim, remedy or other right related to any of the foregoing.

“Appurtenances” means all privileges, rights, easements, hereditaments and appurtenances belonging to or for the benefit of the Land, including all easements appurtenant to and for the benefit of any Land (a “Dominant Parcel”) for, and as the primary means of access between, the Dominant Parcel and a public way, or for any other use upon which lawful use of the Dominant Parcel for the purposes for which it is presently being used is dependent, and all rights existing in and to any streets, alleys, passages and other rights-of-way included thereon or adjacent thereto (before or after vacation thereof) and vaults beneath any such streets.

“Assets” is defined in Section 2.1.

“Assignment and Assumption Agreement” is defined in Section 2.10(a)(ii).

“Assumed Liabilities” is defined in Section 2.4(a).

“Best Efforts” means the efforts that a prudent Person desirous of achieving a result would use in similar circumstances to achieve that result as expeditiously as possible; provided, however, that a Person required to use Best Efforts under this Agreement will not thereby be required to take actions that would result in a material adverse change in the benefits to such Person of this Agreement and the Contemplated Transactions or to dispose of or make any change to its business, expend any material funds or incur any other material burden.

“Bill of Sale” is defined in Section 2.10(a)(i).

“Breach” means any breach of, or any inaccuracy in, any representation or warranty or any breach of, or failure to perform or comply with, any covenant or obligation, in or of this Agreement or any other Contract, or any event which with the passing of time or the giving of notice, or both, would constitute such a breach, inaccuracy or failure.

“Business Day” means any day other than (a) Saturday, Sunday or a statutory or civic holiday, or (b) any other day on which chartered banks in the Province of Manitoba are closed.

“Buyer” is defined in the first paragraph of this Agreement.

“Buyer Indemnified Persons” is defined in Section 8.2.

“CAD” means the currency of Canada, the Canadian dollar.

“Closing” is defined in Section 2.9.

“Closing Accounts Payable” means Liabilities of Seller as of the Closing Date which shall be reflected in the Closing Financial Statements, calculated in accordance with GAAP.

“Closing Accounts Receivable” means Accounts Receivable of Seller as of the Closing Date (net of Accounts Receivable greater than ninety (90) days old) which shall be reflected in the Closing Financial Statements, calculated in accordance with GAAP.

“Closing Net Working Capital” means Closing Accounts Receivable minus Closing Accounts Payable, plus Closing Inventory.

“Closing Date” is defined in Section 2.9.

“Closing Date Financial Statements” is defined in Section 2.11.

“Closing Inventory” means marketable and useable Inventory of Seller as set forth in the Closing Financial Statements and as determined in accordance with Section 2.13 hereof, including finished goods.

“Closing Purchase Price Certificate” is defined in Section 2.11.

“Confidential Information” is defined in Section 9.1.

“Consent” means any approval, consent, ratification, waiver or other authorization.

“Contemplated Transactions” means all of the transactions contemplated by this Agreement.

“Contract” means any agreement, contract, Lease, consensual obligation, promise or undertaking (whether written or oral and whether express or implied), whether or not legally binding relating to the Purchased Business.

“Copyrights” is defined in Section 3.24(a)(iii).

“Damages” is defined in Section 8.2.

“Effective Time” means 12:01 a.m. (Winnipeg time) on January 1, 2008.

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“Employee Plans” is defined in Section 3.15(a).

“Encumbrance” means any charge, claim, condition, equitable interest, lien, option, pledge, security interest, mortgage, right of way, easement, encroachment, servitude, right of first option, right of first refusal or similar restriction, including any restriction on use, voting (in the case of any security or equity interest), transfer, receipt of income or exercise of any other attribute of ownership.

“Environment” means soil, land surface or subsurface strata, surface waters (including navigable waters and ocean waters), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life and any other environmental medium or natural resource.

“Environmental, Health and Safety Liabilities” means any cost, damages, expense, liability, obligation or other responsibility arising from or under any Environmental Law or Occupational Safety and Health Law, including those consisting of or relating to:

(a) any environmental, health or safety matter or condition (including on-site or off-site contamination, occupational safety and health and regulation of any chemical substance or product);

(b) any fine, penalty, judgment, award, settlement, legal or administrative proceeding, damages, loss, claim, demand or response, remedial or inspection cost or expense arising under any Environmental Law or Occupational Safety and Health Law;

(c) financial responsibility under any Environmental Law or Occupational Safety and Health Law for cleanup costs or corrective action, including any cleanup, removal, containment or other remediation or response actions (“Cleanup”) required by any Environmental Law or Occupational Safety and Health Law (whether or not such Cleanup has been required or requested by any Governmental Body or any other Person) and for any natural resource damages; or

(d) any other compliance, corrective or remedial measure required under any Environmental Law or Occupational Safety and Health Law.

“Environmental Law” means any Legal Requirement, including the Canadian Environmental Protection Act, 1999 and The Environment Act (Manitoba) and The Contaminated Sites Remediation Act (Manitoba), that requires or relates to:

(a) advising appropriate authorities, employees or the public of intended or actual Releases of pollutants or hazardous substances or materials, violations of discharge limits or other prohibitions and the commencement of activities, such as resource extraction or construction, that could have significant impact on the Environment;

(b) preventing or reducing to acceptable levels the Release of pollutants or hazardous substances or materials into the Environment;

(c) reducing the quantities, preventing the Release or minimizing the hazardous characteristics of wastes that are generated;

(d) assuring that products are designed, formulated, packaged and used so that they do not present unreasonable risks to human health or the Environment when used or disposed of;

(e) protecting resources, species or ecological amenities;

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(f) reducing to acceptable levels the risks inherent in the transportation of hazardous substances, pollutants, oil or other potentially harmful substances;

(g) cleaning up pollutants that have been Released, preventing the Threat of Release or paying the costs of such clean up or prevention; or

(h) making responsible parties pay private parties, or groups of them, for damages done to their health or the Environment or permitting self-appointed representatives of the public interest to recover for injuries done to public assets.

“Excluded Assets” is defined in Section 2.2.

“Facilities” means any real property, leasehold or other interest in real property currently owned or operated by Seller, including the Tangible Personal Property used or operated by Seller at the respective locations of the Real Property specified in Section 3.7.

“GAAP” means generally accepted accounting principles for financial reporting in Canada, as in effect from time to time.

“Governing Documents” means, with respect to any particular entity, (a) if a corporation, the articles or certificate of incorporation and the bylaws; (b) if a general partnership, the partnership agreement and any statement of partnership; (c) if a limited partnership, the limited partnership agreement and the certificate of limited partnership; (d) if a limited liability company, the articles of organization and operating agreement or regulations; (e) if another type of Person, any other charter or similar document adopted or filed in connection with the creation, formation or organization of the Person; (f) all equityholders’ agreements, voting agreements, voting trust agreements, joint venture agreements, registration rights agreements or other agreements or documents relating to the organization, management or operation of any Person or relating to the rights, duties and obligations of the equityholders of any Person; and (g) any amendment or supplement to any of the foregoing.

“Governmental Authorization” means any Consent, license, registration or permit issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement.

“Governmental Body” means any:

(a) nation, federal, state, provincial, county, city, town, borough, village, district or other jurisdiction;

(b) federal, state, provincial, local, municipal, foreign or other government;

(c) governmental or quasi-governmental authority of any nature (including any agency, branch, department, board, commission, court, tribunal or other entity exercising governmental or quasi-governmental powers);

(d) multinational organization or body;

(e) body exercising, or entitled or purporting to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power; or

(f) official of any of the foregoing.

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“GST” means all taxes payable under the Excise Tax Act (Canada) or under any provincial legislation similar to the Excise Tax Act (Canada), and any reference to a specific provision of the Excise Tax Act (Canada) or any such provincial legislation shall refer to any successor provision thereto of like or similar effect.

“Hazardous Activity” means the distribution, generation, handling, importing, management, manufacturing, processing, production, refinement, Release, storage, transfer, transportation, treatment or use (including any withdrawal or other use of groundwater) of Hazardous Material in, on, under, about or from any of the Facilities or any part thereof into the Environment and any other act, business, operation or thing that increases the danger, or risk of danger, or poses an unreasonable risk of harm, to persons or property on or off the Facilities.

“Hazardous Material” means any substance, material or waste which is or will foreseeably be regulated by any Governmental Body, including any material, substance or waste which is defined as a “hazardous waste,” “hazardous material,” “hazardous substance,” “extremely hazardous waste,” “restricted hazardous waste,” “contaminant,” “toxic waste” or “toxic substance” under any provision of Environmental Law, and including petroleum, petroleum products, asbestos, presumed asbestos-containing material or asbestos-containing material, urea formaldehyde and polychlorinated biphenyls.

“Improvements” means all buildings, structures, fixtures and improvements located on the Land or included in the Assets, including those under construction.

“Indemnified Person” is defined in Section 8.7.

“Indemnifying Person” is defined in Section 8.7.

“Intellectual Property Assets” is defined in Section 3.24(a).

“Interim Balance Sheet” is defined in Section 3.3.

“Inventories” means all inventories of Seller, wherever located, including all finished goods, work in process, raw materials, spare parts and all other materials and supplies to be used or consumed by Seller in the production of finished goods.

“Knowledge” means, in the case of an individual, the actual knowledge of an individual, and, in the case of the Seller, means a fact or other matter that either Kerry Tatelman, Wayne Riguidel or Ben Clarke has actual knowledge of after a reasonable investigation.

“Land” means all parcels and tracts of land in which Seller has an ownership interest as more specially described on Schedule 2.2(k).

“Lease” means any Real Property Lease or any lease or rental agreement, license, right to use or installment and conditional sale agreement to which Seller is a party and any other Seller Contract pertaining to the leasing or use of any Tangible Personal Property.

“Legal Requirement” means any federal, state, provincial, local, municipal, foreign, international, multinational or other constitution, law, ordinance, principle of common law, code, regulation, statute or treaty.

“Liability” means, with respect to any Person, any liability or obligation of such Person of any kind, character or description, whether known or unknown, absolute or contingent, accrued or unaccrued,

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disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined, determinable or otherwise, and whether or not the same is required to be accrued on the financial statements of such Person.

“Marks” is defined in Section 3.24(a)(i).

“Material Consents” is defined in Section 5.3.

“Occupational Safety and Health Law” means any Legal Requirement designed to provide safe and healthful working conditions and to reduce occupational safety and health hazards, and any program, whether governmental or private (such as those promulgated or sponsored by industry associations and insurance companies), designed to provide safe and healthful working conditions.

“Order” means any order, injunction, judgment, decree, ruling, assessment or arbitration award of any Governmental Body or arbitrator.

“Ordinary Course of Business” an action taken by a Person will be deemed to have been taken in the Ordinary Course of Business only if that action:

(a) is consistent in nature, scope and magnitude with the past practices of such Person and is taken in the ordinary course of the normal, day-to-day operations of such Person; and

(b) does not require authorization by the board of directors or shareholders of such Person (or by any Person or group of Persons exercising similar authority) and does not require any other separate or special authorization of any nature.

“Patents” is defined in Section 3.24(a)(ii).

“Permitted Encumbrances” is defined in Section 3.8.

“Person” means an individual, partnership, corporation, business trust, limited liability company, limited liability partnership, joint stock company, trust, unincorporated association, joint venture or other entity or a Governmental Body.

“Plant Lease Agreement” means the lease of the Land and certain Improvements that are located at 1707 Dugald Road, Winnipeg, Manitoba, Canada, in the form attached as Schedule 2.10(a)(iii).

“Plant Lease Property” means the Land and those Improvements that are subject to the Plant Lease Agreement.

“Proceeding” means any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, judicial or investigative, whether formal or informal, whether public or private) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Body or arbitrator.

“Purchased Business” means the business of manufacturing and selling tubes and cores as presently carried on by the Seller.

“Purchase Price” is defined in Section 2.3.

“Real Property” means the Land and Improvements and all Appurtenances thereto and the Plant Lease Property.

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“Real Property Lease” means any Lease of Real Property.

“Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

“Related Person” means

(a) with respect to a particular individual:

(i) each other member of such individual’s Family (as defined below);

(ii) any Person that is directly or indirectly controlled by any one or more members of such individual’s Family;

(iii) any Person in which members of such individual’s Family hold (individually or in the aggregate) a Material Interest (as defined below); and

(iv) any Person with respect to which one or more members of such individual’s Family serves as a director, officer, partner, executor or trustee (or in a similar capacity).

(b) With respect to a specified Person other than an individual:

(i) any Person that directly or indirectly controls, is directly or indirectly controlled by or is directly or indirectly under common control with such specified Person;

(ii) any Person that holds a Material Interest (as defined below) in such specified Person;

(iii) each Person that serves as a director, officer, partner, executor or trustee of such specified Person (or in a similar capacity);

(iv) any Person in which such specified Person holds a Material Interest; and

(v) any Person with respect to which such specified Person serves as a general partner or a trustee (or in a similar capacity).

For purposes of this definition: (a) “control” (including “controlling,” “controlled by,” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; (b) the “Family” of an individual includes (i) the individual, (ii) the individual’s spouse, (iii) any other natural person who is related to the individual or the individual’s spouse within the second degree, and (iv) any other natural person who resides with such individual; and (c) “Material Interest” means direct or indirect beneficial ownership of voting securities or other voting interests representing at least ten percent (10%) of the outstanding voting power of a Person or equity securities or other equity interests representing at least ten percent (10%) of the outstanding equity securities or equity interests in a Person.

“Release” means any release, spill, emission, leaking, pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge, dispersal, leaching or migration on or into the Environment or into or out of any property.

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“Remedial Action” means all actions, including any capital expenditures, required or voluntarily undertaken: (a) to clean up, remove, treat or in any other way address any Hazardous Material or other substance; (b) to prevent the Release or Threat of Release or to minimize the further Release of any Hazardous Material or other substance so it does not migrate or endanger or threaten to endanger public health or welfare or the Environment; (c) to perform pre-remedial studies and investigations or post-remedial monitoring and care; or (d) to bring all Facilities and the operations conducted thereon into compliance with Environmental Laws and environmental Governmental Authorizations.

“Representative” means, with respect to a particular Person, any director, officer, manager, employee, agent, consultant, advisor, accountant, financial advisor, legal counsel or other representative of that Person.

“Retained Liabilities” is defined in Section 2.4(b).

“Schedule” means a Schedule to this Agreement, including, without limitation, the disclosure Schedules delivered by Seller to Buyer pursuant to Article III concurrently with the execution and delivery of this Agreement.

“Section” means a section of this Agreement.

“Seller” is defined in the first paragraph of this Agreement.

“Seller Contract” means any Contract relating to the Purchased Business (a) under which Seller has or may acquire any rights or benefits, (b) under which Seller has or may become subject to any obligation or liability, or (c) by which Seller or any of the assets owned or used by Seller is or may become bound.

“Seller Indemnified Persons” is defined in section 8.3.

“Software” means all computer software and subsequent versions thereof, including source code, object, executable or binary code, objects, comments, screens, user interfaces, report formats, templates, menus, buttons and icons and all files, data, materials, manuals, design notes and other items and documentation related thereto or associated therewith.

“Subsidiary” means, with respect to any Person (the “Owner”), any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation’s or other Person’s board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred), are held by the Owner or one or more of its Subsidiaries.

“Tangible Personal Property” means all machinery, equipment, tools, furniture, office equipment, computer hardware, supplies, materials, vehicles and other items of tangible personal property (other than Inventories) of every kind owned or leased by Seller and used in the Purchased Business (wherever located and whether or not carried on Seller’s books), together with any express or implied warranty by the manufacturers or sellers or lessors of any item or component part thereof and all maintenance records and other documents relating thereto.

“Target Net Working Capital” means $2,463,000 CAD.

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“Tax” means any income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental, windfall profit, customs, vehicle, airplane, boat, vessel or other title or registration, capital stock, franchise, employees’ income withholding, foreign or domestic withholding, social services, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative, add-on minimum, estimated, or other tax, fee, assessment, levy, tariff, charge or duty of any kind whatsoever and any interest, penalty, addition or additional amount thereon imposed, assessed or collected, whether disputed or not, by or under the authority of any Governmental Body or payable under any tax-sharing agreement or any other Contract.

“Tax Recapture Amount” means that portion of recapture tax due and payable by Seller as determined by Deloitte and Touche LLP based on the difference of $32,000 between Seller’s depreciated net book value for fixed assets and Buyer’s allocation of $602,000 of the Purchase Price to fixed assets as set forth on Schedule 2.5 hereof.

“Tax Return” means any return (including any information return), report, statement, Schedule, notice, form, declaration, claim for refund or other document or information (including any amendment thereof) filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax.

“Third Party” means a Person that is not a party to this Agreement.

“Third-Party Claim” means any claim against any Indemnified Person by a Third Party, whether or not involving a Proceeding.

“Threat of Release” means a reasonable likelihood of a Release that may require action in order to prevent or mitigate damage to the Environment that may result from such Release.

1.2 Interpretation. In this Agreement, unless a clear contrary intention appears:

(i) the singular number includes the plural number and vice versa;

(ii) reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are not prohibited by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually;

(iii) reference to any gender includes each other gender;

(iv) reference to any agreement, document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof;

(v) reference to any Legal Requirement means such Legal Requirement as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any Legal Requirement means that provision of such Legal Requirement from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision;

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(vi) “hereunder,” “hereof,” “hereto,” and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Article, Section or other provision hereof;

(vii) “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding such term;

(viii) “or” is used in the inclusive sense of “and/or”;

(ix) with respect to the determination of any period of time, “from” means “from and including” and “to” means “to but excluding”; and

(x) references to documents, instruments or agreements shall be deemed to refer as well to all addenda, exhibits, Schedules or amendments thereto.

ARTICLE II

SALE AND TRANSFER OF ASSETS; CLOSING; PURCHASE PRICE

2.1 Assets to be Sold. Pursuant to the terms and subject to the conditions set forth in this Agreement, at the Closing, but effective as of the Effective Time, Seller shall sell, convey, assign, transfer and deliver to Buyer, and Buyer shall purchase and acquire from Seller, free and clear of any Encumbrances other than Permitted Encumbrances, all of Seller’s right, title and interest in and to all of Seller’s property and assets, personal or mixed, tangible and intangible, of every kind and description, wherever located, used in or forming part of the Purchased Business, including the following (but excluding the Excluded Assets) (hereinafter collectively referred to as the “Assets”):

(a) all Tangible Personal Property, including without limitation those items described in Schedule 2.1(a);

(b) all Inventories;

(c) Accounts Receivable which are less than ninety (90) days old as of the Closing Date;

(d) all Seller Contracts listed in Schedule 2.4(a), and all outstanding offers or solicitations made by or to Seller to enter into any Contract;

(e) all Governmental Authorizations relevant to the Purchased Business, and all pending applications therefor or renewals thereof, in each case to the extent transferable to Buyer, including those listed in Schedule 3.16(b);

(f) all data and Records related to the operations of the Purchased Business by Seller, including client and customer lists and Records, referral sources, research and development reports and Records, production reports and Records, service and warranty Records, equipment logs, operating guides and manuals, financial and accounting Records, creative materials, advertising materials, promotional materials, studies, reports, correspondence and other similar documents and Records and, subject to Legal Requirements, copies of all personnel Records and other Records described in Section 2.2(g);

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(g) all of the intangible rights and property of Seller in respect of the Purchased Business, including Intellectual Property Assets, going concern value, goodwill, telephone, telecopy and e-mail addresses and listings and those items listed in Schedule 3.24(d), (e) and (h);

(h) all insurance benefits, including rights and proceeds, arising from or relating to the Assets or the Assumed Liabilities prior to the Effective Time, unless expended in accordance with this Agreement;

(i) all claims of Seller against third parties relating to the Assets, whether choate or inchoate, known or unknown, contingent or noncontingent, including all such claims listed in Schedule 2.1(i);

(j) all rights of Seller relating to deposits and prepaid expenses, claims for refunds and rights to offset in respect thereof that are not listed in Schedule 2.2(d) and that are not excluded under Section 2.2(h); and

(k) the right to the continued and uninterrupted use of the name “Mayers Fibre Tube & Core” in order that, amongst other things, Buyer shall be entitled to represent itself as carrying on the Purchased Business in continuation of Seller, such right to include all logos, marks or stylized depictions.

Notwithstanding the foregoing, the transfer of the Assets pursuant to this Agreement shall not include the assumption of any Liability related to the Assets unless Buyer expressly assumes that Liability pursuant to Section 2.4(a) (Assumed Liabilities).

2.2 Excluded Assets. Notwithstanding anything to the contrary contained in Section 2.1 (Assets to be sold) or elsewhere in this Agreement, the following assets of Seller (collectively, the “Excluded Assets”) are not part of the sale and purchase contemplated hereunder, are excluded from the Assets and shall remain the property of Seller after the Closing:

(a) all cash, cash equivalents and investments;

(b) all minute books, stock Records and corporate seals;

(c) the shares of capital stock of Seller held in treasury;

(d) those rights relating to deposits and prepaid expenses and claims for refunds and rights to offset in respect thereof listed in Schedule 2.2(d);

(e) all life insurance benefits and proceeds receivable, and all insurance other policies and rights thereunder (except to the extent specified in Section 2.1(h) and (i));

(f) all of the Seller Contracts listed in Schedule 2.2(f);

(g) all personnel Records and other Records that Seller is required by law to retain in its possession;

(h) all claims for refund of Taxes;

(i) all rights in connection with and assets of the Employee Plans;

(j) all rights of Seller under this Agreement, the Bill of Sale, and the Assignment and Assumption Agreement and any other documents executed in connection with this Agreement;

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(k) the property and assets expressly designated in Schedule 2.2(k), including the Plant Lease Property which shall be subject to a lease with Buyer with an exclusive option to purchase as set forth in the Plant Lease Agreement.

(l) accounts receivable which are ninety (90) days or more old;

(m) all deferred investment tax credits; and

(n) all obsolete, unusable or unsaleable inventory as determined pursuant to Section 2.13.

2.3 Consideration. The consideration for the Assets (the “Purchase Price”) will be (a) $5,600,000 CAD (i) decreased by the amount that Target Net Working Capital exceeds Closing Net Working Capital as of the close of business on the day prior to the Closing Date, and (ii) increased by the Tax Recapture Amount, and (b) the assumption of the Assumed Liabilities. In accordance with Section 2.10(b), at the Closing, the Purchase Price shall be delivered by Buyer to Seller by wire transfer or delivery of other immediately available funds. The Plant Lease Property shall be subject to a lease with an exclusive option granted to Buyer to purchase the Plant Lease Property for $3,500,000 CAD, which shall be paid upon Seller’s exercise of the option as specifically set forth in the Plant Lease Agreement.

2.4 Liabilities.

(a) Assumed Liabilities. On the Closing Date, but effective as of the Effective Time, Buyer shall assume all rights under and agree to discharge, satisfy, perform and fulfill all of the Seller’s purchase orders and sales orders entered into by the Seller in the Ordinary Course of Business as specifically set forth in Schedule 2.4(a), together with those additional Liabilities of Seller specifically set forth in Schedule 2.4(a) (collectively the “Assumed Liabilities”).

(b) Retained Liabilities. The Retained Liabilities shall remain the sole responsibility of, and shall be retained, paid, performed and discharged solely by Seller. “Retained Liabilities” shall mean every Liability of Seller other than the Assumed Liabilities which are specifically listed in Schedule 2.4(a).

2.5 Allocation. The Purchase Price shall be allocated in accordance with Schedule 2.5. After the Closing, the parties shall make consistent use of the allocation, fair market value and useful lives specified in Schedule 2.5 for all Tax purposes and in all filings, declarations and reports with the appropriate Governmental Body in respect thereof. In any Proceeding related to the determination of any Tax, neither Buyer nor Seller shall contend or represent that such allocation is not a correct allocation.

2.6 ETA Election. Buyer and Seller shall elect jointly under subsection 167(1) of the Excise Tax Act (Canada) in the form prescribed for the purposes of that subsection, in respect of the sale and transfer of the Assets hereunder, and Buyer shall file such election in its GST return for its reporting period that includes the Closing Date.

2.7 Transfer Taxes. Buyer shall be liable for and shall pay all federal and provincial sales taxes (including any retail sales taxes) and all other taxes, duties, fees or other like charges of any jurisdiction properly payable in connection with the transfer of the Assets by Seller to Buyer.

2.8 ITA Election. Buyer and Seller agree to elect jointly in the prescribed form under section 22 of the ITA as to the sale of the accounts receivable and other assets that are referred to in Subsection 2.1(c) and described in Section 22 of the ITA and to designate in such election an amount equal to the portion of the Purchase Price allocated to such assets pursuant to Section 2.5 as the consideration paid by the Buyer therefor.

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2.9 Closing. The consummation of the purchase and sale provided for in this Agreement (the “Closing”) will take place by overnight deliveries and electronic communications pursuant to procedures agreed upon by Buyer and Seller and shall be deemed effective as of 12:01 a.m. (Winnipeg time) on January 1, 2008 (the “Closing Date”).

2.10 Closing Obligations. In addition to any other documents to be delivered under other provisions of this Agreement, at the Closing:

(a) Seller shall deliver to Buyer:

(i) a bill of sale for all of the Assets that are Tangible Personal Property in the form of Exhibit 2.10(a)(i) (the “Bill of Sale”) executed by Seller;

(ii) an assignment of all of the Assets that are intangible personal property in the form of Exhibit 2.10(a)(ii), which assignment shall also contain Buyer’s undertaking and assumption of the Assumed Liabilities (the “Assignment and Assumption Agreement”) executed by Seller;

(iii) a lease agreement for the lease of the Plant Lease Property with an exclusive option to purchase for $3,500,000 CAD in the form of Exhibit 2.10(a)(iii) (the “Plant Lease Agreement”) executed by Seller;

(iv) assignments of all Intellectual Property Assets and separate assignments of all registered Marks, Patents and Copyrights in the form of Exhibit 2.10(a)(iv) Intellectual Property Assignment Agreement executed by Seller;

(v) such other deeds, bills of sale, assignments, certificates of title, documents and other instruments of transfer and conveyance as may reasonably be requested by Buyer in order to carry out the Contemplated Transactions, each in form and substance satisfactory to Buyer and its legal counsel, acting reasonably, and executed by Seller; and

(vi) non-competition agreements in the form of Exhibit 2.10(a)(vi), (the “Non-competition Agreements”).

(vii) a certificate executed by Seller as to the accuracy of its representations and warranties as of the date of this Agreement and as of the Closing in accordance with Section 5.1 (Accuracy of Representations) and as to its compliance with and performance of their covenants and obligations to be performed or complied with at or before the Closing in accordance with Section 5.2 (Seller’s Performance);

(viii) a certificate of an officer of Seller certifying, as complete and accurate as of the Closing, attached copies of the Governing Documents of Seller, certifying and attaching all requisite resolutions or actions of Seller’s board of directors and shareholders approving the execution and delivery of this Agreement and the consummation of the Contemplated Transactions and certifying to the incumbency and signatures of the officers of Seller executing this Agreement and any other document relating to the Contemplated Transactions;

(ix) the GST joint election referred to in Section 2.6 above;

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(x) the Interim Balance Sheet referred to in Section 3.3 hereof;

(xi) a Closing Purchase Price Certificate (defined in Section 2.11 hereof);

(xii) a clearance certificate issued pursuant to The Tax Administration and Miscellaneous Taxes Act (Manitoba) to the effect that all taxes under said Act relating to the Assets have been paid by Seller, save only tax payable by Buyer as a direct result of the Contemplated Transactions. Such certificate shall be delivered as soon as possible after the Closing Date;

(xiii) a clearance certificate issued pursuant to The Workers Compensation Act (Manitoba) to the effect that all amounts as may be required to be paid by Seller under said Act relating to Seller’s Business have been paid by Seller. Such certificate shall be delivered as soon as possible after the Closing Date;

(xiv) a consulting agreement executed by Ben Clarke, in the form of Exhibit 2.10(xiv) (the “Clarke Consulting Agreement”);

(xv) an employment agreement executed by Wayne Riguidel, in the form of Exhibit 2.10(xiii) (the “Riguidel Employment Agreement”);

(xvi) a personal guaranty agreement executed by Kerry Tatelman, in the form of Exhibit 2.10(xvi) (the “Personal Guaranty”); and

(xviii) dissolution of the Business Name “Mayers Fibre Tube & Core.”

(b) Buyer shall deliver to Seller:

(i) the Purchase Price payable to Seller pursuant to Section 2.3 hereof by wire transfer to an account specified by Seller in a writing delivered to Buyer at least three (3) Business Days prior to the Closing Date;

(ii) the Assignment and Assumption Agreement executed by Buyer;

(iii) the Plant Lease Agreement executed by Buyer;

(iv) the Intellectual Property Assignment Agreement executed by Buyer;

(v) the Non-competition Agreements executed by Buyer;

(vi) the Clarke Consulting Agreement executed by Buyer;

(vii) the Riguidel Employment Agreement executed by Buyer;

(viii) a certificate executed by Buyer as to the accuracy of its representations and warranties as of the date of this Agreement and as of the Closing in accordance with Section 6.1 (Accuracy of Representations) and as to its compliance with and performance of its covenants and obligations to be performed or complied with at or before the Closing in accordance with Section 6.2 (Buyer’s Performance);

(ix) a certificate of the Secretary of Buyer certifying, as complete and accurate as of the Closing, attached copies of the Governing Documents of Buyer and certifying

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and attaching all requisite resolutions or actions of Buyer’s board of directors approving the execution and delivery of this Agreement and the consummation of the Contemplated Transactions and certifying to the incumbency and signatures of the officers of Buyer executing this Agreement and any other document relating to the Contemplated Transactions.

(x) the GST joint election referred to in Section 2.6 above, along with an undertaking to self-assess for GST; and

(xi) such other documents and other instruments as may reasonably be requested by Seller in order to carry out the Contemplated Transactions, each in form and substance satisfactory to Seller and its legal counsel, acting reasonably, and executed by Buyer.

2.11 Purchase Price Adjustment.

The parties agree that the Purchase Price shall be adjusted in accordance with the following provisions:

(a) On the Closing Date, Seller will furnish to Buyer a certificate signed by an authorized signing officer of Seller (the “Closing Purchase Price Certificate”), certifying (i) the Closing Accounts Receivable, (ii) the Closing Accounts Payable, and (iii) the Closing Inventory in each case, calculated as required by this Agreement or as otherwise consistent with past practice; the statements of the Closing Accounts Payable, the Closing Accounts Receivable, and the Closing Inventory are collectively referred to as the “Closing Date Financial Statements”). Prior to Closing, Seller shall deliver to Buyer and its Representatives copies of the work papers and all other information in the preparation of the Closing Date Financial Statements and the Closing Purchase Price Certificate at all times prior to the Closing and such other information as may be reasonably requested by Buyer.

(b) The Purchase Price shall be decreased by the amount that the Target Net Working Capital exceeds Closing Net Working Capital.

(c) Within forty-five (45) days of receiving the Closing Purchase Price Certificate and the Closing Date Financial Statements (the “Review Period”), Buyer shall have the right to verify the accuracy of the Closing Purchase Price Certificate and the Closing Date Financial Statements through its own post-Closing investigation. If Buyer delivers written notice (the “Dispute Notice”) to Seller within the Review Period stating that Buyer objects to any item in the Closing Purchase Price Certificate and Closing Date Financial Statements, specifying in reasonable detail the basis for such objection and setting forth Buyer’s proposed modification to such item (and any amounts due to Buyer as a result thereof), Seller shall remit to Buyer the amount specified in the Dispute Notice in accordance with the indemnification rights set forth in Article VIII hereof, absent any written objection from Seller. Seller may object to the Dispute Notice by delivering to Buyer written notice of its objection which is required to be delivered to and received by Buyer within seven (7) Business Days of the date of receipt by the Seller of the Dispute Notice.

(d) If Seller duly gives Buyer notice of an objection, and if Seller and Buyer fail to resolve the issues outstanding with respect to the Closing Purchase Price Certificate and the Closing Date Financial Statements within thirty (30) days of Buyer’s receipt of Seller’s objection notice, Seller and Buyer shall submit the issues remaining in dispute to PricewaterhouseCoopers LLP, independent public accountants (the “Independent Accountants”). If issues are submitted to the Independent Accountants for resolution, (i) Seller and Buyer shall furnish or cause to be furnished to the Independent Accountants such work papers and other documents and information relating to the disputed issues as the Independent Accountants may request and are available to that party or its agents and shall be afforded the opportunity

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to present to the Independent Accountants any material relating to the disputed issues and to discuss the issues with the Independent Accountants, (ii) the determination by the Independent Accountants, as set forth in a notice to be delivered to both Seller and Buyer within sixty (60) days of the submission to the Independent Accountants of the issues remaining in dispute, shall be final, binding and conclusive on the parties and shall be used in the calculation of the Closing Date Financial Statements, and (iii) Seller and Buyer will each bear fifty percent (50%) of the fees and costs of the Independent Accountants for such determination. Upon agreement with respect to all matters in dispute, or upon a decision of the Independent Accountants with respect to the matters in dispute, any post-closing adjustment of the Purchase Price shall be done by Seller paying to any such deficiency to Buyer in immediately available funds.

2.12 Consents.

(a) If there are any Material Consents that have not yet been obtained (or otherwise are not in full force and effect) as of the Closing, in the case of each Seller Contract as to which such Material Consents were not obtained (or otherwise are not in full force and effect) (the “Restricted Material Contracts”), Buyer may waive the closing conditions as to any such Material Consent and elect to have Seller continue its efforts to obtain the Material Consents.

If Buyer elects to have Seller continue its efforts to obtain any Material Consents and the Closing occurs, notwithstanding Sections 2.1 (Assets to be Sold) and 2.4 (Liabilities), neither this Agreement nor the Assignment and Assumption Agreement nor any other document related to the consummation of the Contemplated Transactions shall constitute a sale, assignment, assumption, transfer, conveyance or delivery or an attempted sale, assignment, assumption, transfer, conveyance or delivery of the Restricted Material Contracts, and following the Closing, the parties shall use Best Efforts, and cooperate with each other, to obtain the Material Consent relating to each Restricted Material Contract as quickly as practicable. Pending the obtaining of such Material Consents relating to any Restricted Material Contract, the parties shall cooperate with each other in any reasonable and lawful arrangements designed to provide to Buyer the benefits of use of the Restricted Material Contract for its term (or any right or benefit arising thereunder, including the enforcement for the benefit of Buyer of any and all rights of Seller against a third party thereunder). Once a Material Consent for the sale, assignment, assumption, transfer, conveyance and delivery of a Restricted Material Contract is obtained, Seller shall promptly assign, transfer, convey and deliver such Restricted Material Contract to Buyer, and Buyer shall assume the obligations under such Restricted Material Contract assigned to Buyer from and after the date of assignment to Buyer pursuant to a special-purpose assignment and assumption agreement substantially similar in terms to those of the Assignment and Assumption Agreement (which special-purpose agreement the parties shall prepare, execute and deliver in good faith at the time of such transfer, all at no additional cost to Buyer).

(b) If there are any Consents not listed on Schedule 5.3 necessary for the assignment and transfer of any Seller Contracts to Buyer (the “Non-material Consents”) which have not yet been obtained (or otherwise are not in full force and effect) as of the Closing, Buyer shall accept at the Closing, in the case of each of Seller Contracts as to which such Non-material Consents were not obtained (or otherwise are not in full force and effect) (the “Restricted Non-material Contracts”), the assignment of such Restricted Non-material Contract, and Seller agrees to cooperate with Buyer to obtain the applicable Non-material Consent as soon as practicable after the Closing.

2.13 Closing Inventory. In determining the Closing Inventory Buyer shall not be obliged to purchase any inventory that is obsolete, unusable and/or unsaleable. Buyer and Seller shall conduct a physical inventory count on or prior the Closing Date (but no more than 3 Business Days prior to the Closing Date) at which time the parties shall jointly determine whether any inventory is obsolete,

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unusable and/or unsaleable. Buyer and Seller shall each designate a representative to participate in the physical inventory count and who shall have the authority to make a determination regarding whether any inventory is obsolete, unusable and/or unsaleable.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

OF SELLER

Seller represents and warrants, to Buyer as follows:

3.1 Organization and Good Standing.

(a) Seller is a corporation duly organized, validly existing and in good standing under the laws of Manitoba, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform all its obligations under the Seller Contracts.

3.2 Enforceability; Authority; No Conflict.

(a) This Agreement constitutes the legal, valid and binding obligation of Seller enforceable against it in accordance with its terms. Upon the execution and delivery by Seller of each agreement to be executed or delivered by Seller at the Closing (collectively, the “Seller’s Closing Documents”), each of Seller’s Closing Documents will constitute the legal, valid and binding obligation of Seller enforceable against Seller in accordance with its terms. Seller has the absolute and unrestricted right, power and authority to execute and deliver this Agreement and Seller’s Closing Documents to which it is a party and to perform its obligations under this Agreement and Seller’s Closing Documents, and such action has been duly authorized by all necessary action by Seller’s shareholders and board of directors.

(b) Except as set forth in Schedule 3.2(b), neither the execution and delivery of this Agreement nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time):

(i) Breach (A) any provision of any of the Governing Documents of Seller or (B) any resolution adopted by the board of directors or the shareholders of Seller;

(ii) Breach or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under any Legal Requirement or any Order to which Seller, or any of the Assets, may be subject;

(iii) contravene, conflict with or result in a violation or breach of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by Seller or that otherwise relates to the Assets or to the business of Seller; or

(iv) result in the imposition or creation of any Encumbrance upon or with respect to any of the Assets.

(c) Except as set forth in Schedule 3.2(c), Seller is not required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions.

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3.3 Financial Statements. Seller has delivered to Buyer: (a) reviewed balance sheets of 57151 Manitoba Ltd. (the operator of the Purchased Business prior to its amalgamation with 2789737 Manitoba Ltd. to become the Seller on November 30, 2007) for each of the fiscal years 2004 through 2006, and the related reviewed statements of income, changes in shareholders’ equity and cash flows for each of the fiscal years then ended, including in each case the notes thereto; and (b) a reviewed balance sheet of 57151 Manitoba Ltd. as at November 30, 2007, (the “Interim Balance Sheet”) and the related unaudited statements of income, changes in shareholders’ equity, and cash flows for the eleven (11) months then ended, including in each case the notes thereto. Such financial statements fairly present the financial condition and the results of operations, changes in shareholders’ equity and cash flows of Seller as at the respective dates of and for the periods referred to in such financial statements, all in accordance with GAAP. The financial statements referred to in this Section reflect the consistent application of such accounting principles throughout the periods involved, except as disclosed in the notes to such financial statements. The financial statements referenced in this Section and the Closing Date Financial Statements have been prepared from and are in accordance with the accounting Records of Seller.

3.4 Books and Records. The books of account and other financial Records of Seller, all of which have been made available to Buyer, are complete and correct and represent actual, bona fide transactions.

3.5 Sufficiency of Assets. Except as set forth in Schedule 3.5, the Assets (a) constitute all of the assets, tangible and intangible, of any nature whatsoever, reasonably necessary to operate the Purchased Business in the manner presently operated by Seller.

3.6 Description of Owned Real Property. Schedule 3.6 contains a correct legal description and street address of all tracts, parcels and subdivided lots of Land and all Real Property in which Seller has an ownership interest, including an interest as a trustee owner.

3.7 Description of Leased Real Property. Schedule 3.7 contains a correct legal description and street address of all tracts, parcels and subdivided lots in which Seller has a leasehold interest and an accurate description (by location, name of lessor, date of Lease and term expiry date) of all Real Property Leases.

3.8 Title to Assets; Encumbrances.

(a) Seller has good and marketable title to the Real Property, free and clear of any Encumbrances, other than:

(i) liens for Taxes for the current tax year which are not yet due and payable; and

(ii) those described in Schedule 3.8(a) (“Real Estate Encumbrances”).

True and complete copies of (A) all deeds, existing title insurance policies and surveys of or pertaining to the Real Property and (B) all instruments, agreements and other documents evidencing, creating or constituting any Real Estate Encumbrances have been delivered to Buyer. Seller warrants to Buyer that, at the time of Closing, the Real Property shall be free and clear of all Real Estate Encumbrances other than only those identified on Schedule 3.8(a) (“Permitted Real Estate Encumbrances”).

(b) Seller owns good and transferable title to all of the other Assets, free and clear of any Encumbrances other than those described in Schedule 3.8(b) (“Non-Real Estate Encumbrances”).

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Seller warrants to Buyer that, at the time of Closing, all other Assets shall be free and clear of all Non-Real Estate Encumbrances other than those identified on Schedule 3.8(b) as acceptable to Buyer (“Permitted Non-Real Estate Encumbrances” and, together with the Permitted Real Estate Encumbrances, “Permitted Encumbrances”).

3.9 Condition of Facilities.

(a) Use of the Real Property for the various purposes for which it is presently being used is permitted as of right under all applicable zoning legal requirements. All Improvements are in compliance with all applicable Legal Requirements, including those pertaining to zoning, building and the disabled, are in reasonably good repair and in reasonably good condition, ordinary wear and tear excepted, and are free from latent and patent defects. To the Knowledge of the Seller, no part of any Improvement encroaches on any real property not included in the Real Property, and there are no buildings, structures, fixtures or other Improvements primarily situated on adjoining property which encroach on any part of the Land. The Land for each owned Facility abuts on and has direct vehicular access to a public road or has access to a public road via a permanent, irrevocable, appurtenant easement benefiting such Land and comprising a part of the Real Property, is supplied with public or quasi-public utilities and other services appropriate for the operation of the Facilities located thereon and is not located within any area subject to wetlands regulation or any similar restriction. To the Knowledge of Seller, there is no existing or proposed plan to modify or realign any street or highway or any existing or proposed proceeding that would result in the taking of all or any part of any Facility or that would prevent or hinder the continued use of any Facility as heretofore used in the conduct of the business of Seller.

(b) Except as disclosed in Schedule 3.9(b), each item of Tangible Personal Property is in reasonably good repair and reasonably good operating condition, ordinary wear and tear excepted, is suitable for immediate use in the Ordinary Course of Business and is free from latent and patent defects. No item of Tangible Personal Property is in need of repair or replacement other than as part of routine maintenance in the Ordinary Course of Business. Except as disclosed in Schedule 3.9(b), all Tangible Personal Property used in Seller’s business is in the possession of Seller.

3.10 Accounts Receivable. All Accounts Receivable that are reflected on the Interim Balance Sheet, on the Closing Date Financial Statements or on the accounting Records of Seller as of the Closing Date represent or will represent valid obligations arising from sales actually made or services actually performed by Seller in the Ordinary Course of Business. Each of such Accounts Receivable either has been or will be collected in full, without any setoff, within ninety (90) days after the day on which it first becomes due and payable. There is no material contest, claim, defense or right of setoff, other than returns in the Ordinary Course of Business of Seller, under any Contract with any account debtor of an Account Receivable relating to the amount or validity of such Account Receivable. Schedule 3.10 contains a complete and accurate list of all Accounts Receivable as of the date of the Interim Balance Sheet, which list sets forth the aging of each such Account Receivable.

3.11 Inventories. All items included in the Inventories consist of a quality and quantity usable and, with respect to finished goods, saleable, in the Ordinary Course of Business of Seller, except for obsolete items and items of below-standard quality, all of which have been written off or written down to net realizable value in the Interim Balance Sheet, in the Closing Date Financial Statements and accounting Records of Seller as of the Closing Date, as the case may be. Seller is not in possession of any inventory not owned by Seller, except as set forth in Schedule 3.11. All of the Inventories have been valued at the lower of cost or market value. Inventories now on hand that were purchased after the date of the Interim Balance Sheet were purchased in the Ordinary Course of Business of Seller at a cost not exceeding market prices prevailing at the time of purchase. The quantities of each item of Inventories (whether raw materials, work-in-process or finished goods) are not excessive but are reasonable in the present circumstances of Seller. Work-in-process Inventories are now valued, and will be valued on the Closing Date, according to GAAP.

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3.12 No Undisclosed Liabilities. Except as set forth in Schedule 3.12, Seller has no Liability in respect of the Purchased Business except for Liabilities reflected or reserved against in the Interim Balance Sheet and current liabilities incurred in the Ordinary Course of Business of Seller since the date of the Interim Balance Sheet.

3.13 Taxes.

(a) Tax Returns Filed and Taxes Paid. Seller has filed or caused to be filed on a timely basis all Tax Returns and all reports with respect to Taxes that are or were required to be filed pursuant to applicable Legal Requirements. All Tax Returns and reports filed by Seller are true, correct and complete. Seller has paid, or made provision for the payment of, all Taxes that have or may have become due for all periods covered by the Tax Returns or otherwise, or pursuant to any assessment received by Seller, except such Taxes, if any, as are listed in Schedule 3.13(a) and are being contested in good faith and as to which adequate reserves (determined in accordance with GAAP) have been provided in the Interim Balance Sheet. Except as provided in Schedule 3.13(a), Seller currently is not the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made or is expected to be made by any Governmental Body in a jurisdiction where Seller does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Encumbrances on any of the Assets that arose in connection with any failure (or alleged failure) to pay any Tax, and Seller has no Knowledge of any basis for assertion of any claims attributable to Taxes which, if adversely determined, would result in any such Encumbrance.

(b) Delivery of Tax Returns and Information Regarding Audits and Potential Audits. Seller has delivered or made available to Buyer copies of all Tax Returns for 57151 Manitoba Ltd. filed since December 31, 2004. Schedule 3.13(b) contains a complete and accurate list of all Tax Returns of Seller that have been audited or are currently under audit and accurately describe any deficiencies or other amounts that were paid or are currently being contested. To the Knowledge of Seller, no undisclosed deficiencies are expected to be asserted with respect to any such audit. All deficiencies proposed as a result of such audits have been paid, reserved against, settled or are being contested in good faith by appropriate proceedings as described in Schedule 3.13(b). Seller has delivered, or made available to Buyer, copies of any examination reports, statements or deficiencies or similar items with respect to such audits. Except as provided in Schedule 3.13(b), Seller has no Knowledge that any Governmental Body is likely to assess any additional taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Taxes of Seller either (i) claimed or raised by any Governmental Body in writing or (ii) as to which Seller has Knowledge. Except as described in Schedule 3.13(b), Seller has not given or been requested to give waivers or extensions (or is or would be subject to a waiver or extension given by any other Person) of any statute of limitations relating to the payment of Taxes of Seller or for which Seller may be liable.

(c) Proper Accrual. The charges, accruals and reserves with respect to Taxes on the Records of Seller are adequate (determined in accordance with GAAP) and to the Knowledge of Seller are at least equal to Seller’s liability for Taxes. To the Knowledge of Seller, there exists no proposed tax assessment or deficiency against Seller except as disclosed in the Interim Balance Sheet or the Closing Date Financial Statements.

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(d) Specific Potential Tax Liabilities and Tax Situations.

(i) Withholding. All Taxes that Seller is or was required by Legal Requirements, including the Income Tax Act (Canada), to withhold, deduct or collect have been duly withheld, deducted and collected and, to the extent required, have been paid to the proper Governmental Body or other Person.

(ii) Tax Sharing or Similar Agreements. There is no tax sharing agreement, tax allocation agreement, tax indemnity obligation or similar written or unwritten agreement, arrangement, understanding or practice with respect to Taxes (including any advance pricing agreement, closing agreement or other arrangement relating to Taxes) that will require any payment by Seller.

3.14 No Material Adverse Change. Since December 31, 2006, there has not been any material adverse change in the business, operations, prospects, assets, results of operations or condition (financial or other) of Seller, and no event has occurred or circumstance exists that may result in such a material adverse change, other than any adverse change, effect or circumstance relating generally to financial markets or general economic conditions or any adverse change, effect or circumstance relating to conditions generally affecting the industry in which the Seller operates.

3.15 Employee Benefits.

(a) Set forth in Schedule 3.15(a) is a complete and correct list of all “employee benefit plans,” all fringe benefit plans and all other bonus, incentive-compensation, deferred-compensation, profit-sharing, stock-option, stock-appreciation-right, stock-bonus, stock-purchase, employee-stock-ownership, savings, severance, change-in-control, supplemental-unemployment, layoff, salary-continuation, retirement, pension, health, life-insurance, disability, accident, group-insurance, vacation, holiday, sick-leave, fringe-benefit or welfare plan, and any other employee compensation or benefit plan, agreement, policy, practice, commitment, contract or understanding (whether qualified or nonqualified, currently effective or terminated, written or unwritten) and any trust, escrow or other agreement related thereto that (i) is maintained or contributed to by Seller or any other corporation or trade or business controlled by, controlling or under common control with Seller (“Benefits Affiliate”) or has been maintained or contributed to in the last six (6) years by Seller or any Benefits Affiliate, or with respect to which Seller or any Benefits Affiliate has or may have any liability, and (ii) provides benefits, or describes policies or procedures applicable to any current or former director, officer, employee or service provider of Seller or any Benefits Affiliate, or the dependents of any thereof, regardless of how (or whether) liabilities for the provision of benefits are accrued or assets are acquired or dedicated with respect to the funding thereof (collectively the “Employee Plans”);

(b) Seller is not subject to any liability, or any lien, restriction or other adverse right relating to any Employee Plans that would affect in any manner whatsoever Buyer’s right, title and interest in, or Buyer’s right to use or enjoy (free and clear of any Encumbrance, other than Permitted Encumbrances), any of the Assets, any of the Assumed Liabilities or any aspect of the business acquired by Buyer pursuant to this Agreement;

(c) Except for the obligations assumed by Buyer pursuant to Section 2.4(a) hereof, Buyer will have no liabilities for benefits (either contractual or monetary), costs or expenses under any of the Employee Plans, which Seller maintains or to which Seller has any outstanding, present or future obligations to contribute or make payments under, whether voluntary, contingent or otherwise.

3.16 Compliance with Legal Requirements; Governmental Authorizations.

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(a) Except as set forth in Schedule 3.16(a):

(i) Seller is, and at all times since December 31, 2005, has been, in material compliance with each Legal Requirement that is or was applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets;

(ii) no event has occurred or circumstance exists that (with or without notice or lapse of time) (A) may constitute or result in a violation by Seller of, or a failure on the part of Seller to comply in any material way with, any Legal Requirement or (B) may give rise to any obligation on the part of Seller to undertake, or to bear all or any portion of the cost of, any remedial action of any nature; and

(iii) Seller has not received, at any time since December 31, 2005, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (A) any actual, alleged, possible or potential violation of, or failure to comply with, any Legal Requirement or (B) any actual, alleged, possible or potential obligation on the part of Seller to undertake, or to bear all or any portion of the cost of, any remedial action of any nature.

(b) Schedule 3.16(b) contains a complete and accurate list of each Governmental Authorization that is held by Seller or that otherwise relates to Seller’s business or the Assets. Each Governmental Authorization listed or required to be listed in Schedule 3.16(b) is valid and in full force and effect. Except as set forth in Schedule 3.16(b), to the Knowledge of Seller:

(i) Seller is, and at all times since December 31, 2005, has been, in full compliance with all of the terms and requirements of each Governmental Authorization identified or required to be identified in Schedule 3.16(b);

(ii) no event has occurred or circumstance exists that may (with or without notice or lapse of time) (A) constitute or result directly or indirectly in a violation of or a failure to comply in any material way with any term or requirement of any Governmental Authorization listed or required to be listed in Schedule 3.16(b) or (B) result directly or indirectly in the revocation, withdrawal, suspension, cancellation or termination of, or any modification to, any Governmental Authorization listed or required to be listed in Schedule 3.16(b);

(iii) Seller has not received, at any time since December 31, 2005, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (A) any actual, alleged, possible or potential violation of or failure to comply with any term or requirement of any Governmental Authorization or (B) any actual, proposed, possible or potential revocation, withdrawal, suspension, cancellation, termination of or modification to any Governmental Authorization; and

(iv) all applications required to have been filed for the renewal of the Governmental Authorizations listed or required to be listed in Schedule 3.16(b) have been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings required to have been made with respect to such Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies.

The Governmental Authorizations listed in Schedule 3.16(b) collectively constitute all of the Governmental Authorizations necessary to permit Seller to lawfully conduct and operate its business in the manner in which it currently conducts and operates such business and to permit Seller to own and use its assets in the manner in which it currently owns and uses such assets.

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(c) Other than those described in Schedule 3.16(c), there are no outstanding work orders, non-compliance orders, deficiency notices or other such notices relative to the Assets which have been issued by any police or fire department, sanitation, environment, labor, health or other Governmental Body. There are no matters under discussion with any such department or authority relating to work orders, non-compliance orders, deficiency notices or other such notices.

3.17 Legal Proceedings; Orders.

(a) Except as set forth in Schedule 3.17(a), there is no pending or, to Seller’s Knowledge, threatened Proceeding:

(i) by or against Seller or that otherwise relates to or may affect the Purchased Business of, or any of the Assets in any material way; or

(ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the Contemplated Transactions.

To the Knowledge of Seller, no event has occurred or circumstance exists that is reasonably likely to give rise to or serve as a basis for the commencement of any such Proceeding. There are no Proceedings listed or required to be listed in Schedule 3.17(a) that could have a material adverse effect on the business, operations, assets, condition or prospects of Seller or upon the Assets.

(b) Except as set forth in Schedule 3.17(b):

(i) there is no Order to which Seller, its business or any of the Assets is subject; and

(ii) to the Knowledge of Seller, no officer, director, agent or employee of Seller is subject to any Order that prohibits such officer, director, agent or employee from engaging in or continuing any conduct, activity or practice relating to the business of Seller.

(c) Except as set forth in Schedule 3.17(c):

(i) Seller is, and, at all times since December 31, 2005, has been in material compliance with all of the terms and requirements of each Order to which it or any of the Assets is or has been subject;

(ii) no event has occurred or circumstance exists that is reasonably likely to constitute or result in (with or without notice or lapse of time) a violation of or failure to comply with any term or requirement of any Order to which Seller or any of the Assets is subject; and

(iii) Seller has not received, at any time since December 31, 2005, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding any actual, alleged, possible or potential violation of, or failure to comply with, any term or requirement of any Order to which Seller or any of the Assets is or has been subject.

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3.18 Absence of Certain Changes and Events. Except as set forth in Schedule 3.18, since December 31, 2006, Seller has conducted its business only in the Ordinary Course of Business and there has not been any:

(a) payment (except in the Ordinary Course of Business) or increase by Seller of any bonuses, salaries or other compensation to any shareholder, director, officer or employee or entry into any employment, severance or similar Contract with any director, officer or employee;

(b) adoption of, amendment to or increase in the payments to or benefits under, any Employee Plan;

(c) material damage to or material destruction or loss of any Asset, whether or not covered by insurance;

(d) entry into, termination of or receipt of notice of termination of (i) any license, distributorship, dealer, sales representative, joint venture, credit or similar Contract to which Seller is a party, or (ii) any Contract or transaction involving a total remaining commitment by Seller of at least $25,000.00;

(e) sale (other than sales of Inventories in the Ordinary Course of Business), lease or other disposition of any Asset or property of Seller (including the Intellectual Property Assets) or the creation of any Encumbrance on any Asset;

(f) cancellation or waiver of any claims or rights with a value to Seller in excess of $10,000.00;

(g) indication by any customer or supplier of an intention to discontinue or materially change the terms of its relationship with Seller;

(h) material change in the accounting methods used by Seller;

(i) material change in the terms of employment of the Active Employees;

(j) hired or fired any employee relating to the Purchased Business since July 1, 2007; or

(k) Contract by Seller to do any of the foregoing.

3.19 Contracts; No Defaults.

(a) Schedule 3.19(a) contains an accurate and complete list, and Seller has delivered or made available to Buyer accurate and complete copies, of all Seller Contracts and any amendment, supplement and modification thereto (whether oral or written). Schedule 3.19(a) sets forth reasonably complete details concerning such Contracts, including the parties to the Contracts.

(b) Except as set forth in Schedule 3.19(b):

(i) each Contract identified or required to be identified in Schedule 3.19(a) and which is to be assigned to or assumed by Buyer under this Agreement is in full force and effect and is valid and enforceable in accordance with its terms;

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(ii) each Contract identified or required to be identified in Schedule 3.19(a) and which is being assigned to or assumed by Buyer is assignable by Seller to Buyer without the consent of any other Person, except for those Contracts referred to in Schedule 3.2(c); and

(iii) to the Knowledge of Seller, no Contract identified or required to be identified in Schedule 3.19(a) and which is to be assigned to or assumed by Buyer under this Agreement will upon completion or performance thereof have a material adverse affect on the business, assets or condition of Seller or the business to be conducted by Buyer with the Assets.

(c) Except as set forth in Schedule 3.19(c):

(i) Seller is, and at all times since December 31, 2005, has been, in material compliance with all applicable terms and requirements of each Seller Contract which is being assumed by Buyer;

(ii) each other Person that has or had any obligation or liability under any Seller Contract which is being assigned to Buyer is, and at all times since December 31, 2005, has been, in material compliance with all applicable terms and requirements of such Contract;

(iii) no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with or result in a Breach of, or give Seller or other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or payment under, or to cancel, terminate or modify, any Seller Contract that is being assigned to or assumed by Buyer;

(iv) no event has occurred or circumstance exists under or by virtue of any Contract that (with or without notice or lapse of time) would cause the creation of any Encumbrance affecting any of the Assets; and

(v) Seller has not given to or received from any other Person, at any time since December 31, 2005, any notice or other communication (whether oral or written) regarding any actual, alleged, possible or potential violation or Breach of, or default under, any Contract which is being assigned to or assumed by Buyer.

(d) There are no renegotiations of, attempts to renegotiate or outstanding rights to renegotiate any material amounts paid or payable to Seller under current or completed Contracts with any Person having the contractual or statutory right to demand or require such renegotiation and no such Person has made written demand for such renegotiation.

(e) Each Contract relating to the sale, design, manufacture or provision of products or services by Seller has been entered into in the Ordinary Course of Business of Seller and has been entered into without the commission of any act alone or in concert with any other Person, or any consideration having been paid or promised, that is or would be in violation of any Legal Requirement.

3.20 Insurance.

(a) Schedule 3.20 sets forth an accurate and complete list of each policy of insurance and (ii) with respect to the Assets, a list of all pending claims and the claims history for Seller during the current year and the preceding three years (including with respect to insurance obtained but not currently maintained). There are no pending claims under any of such policies of insurance with respect to the Assets as to which coverage has been questioned, denied or disputed by the insurer or in respect of which the insurer has reserved its rights.

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(b) All premiums due under Seller’s policies of insurance have been paid in full or, with respect to premiums not yet due, accrued and are in full force and effect. Seller has not received a notice of cancellation of any policy of insurance or of any material changes that are required in the conduct of the Business as a condition to the continuation of coverage under, or renewal of, any such Policy. To the Knowledge of Seller, there is no existing default or event which, with the giving of notice or lapse of time or both, would constitute a default under any policy of insurance or entitle any insurer to terminate or cancel any policy of insurance with respect to the Assets. Seller does not have any knowledge of any threatened termination of any policy of insurance.

3.21 Environmental Matters.

Except as disclosed in Schedule 3.21:

(a) Seller is, and at all times has been, in material compliance with, and has not been and is not in violation of or liable under, any Environmental Law. Seller has no basis to expect, nor has Seller received, any actual or threatened order, notice or other communication from any Governmental Body or (ii) the current or prior owner or operator of any Facilities, of any actual or potential violation or failure to comply with any Environmental Law, or of any actual or threatened obligation to undertake or bear the cost of any Environmental, Health and Safety Liabilities with respect to any Facility or other property or asset (whether real, personal or mixed) in which Seller has or had an interest, or with respect to any property or Facility at or to which Hazardous Materials were generated, manufactured, refined, transferred, imported, used or processed by Seller, from which Hazardous Materials have been transported, treated, stored, handled, transferred, disposed, recycled or received.

(b) There are no pending or, to the Knowledge of Seller, threatened claims, Encumbrances, or other restrictions of any nature resulting from any Environmental, Health and Safety Liabilities or arising under or pursuant to any Environmental Law with respect to or affecting any Facility or any other property or asset (whether real, personal or mixed) in which Seller has or had an interest.

(c) Seller has no Knowledge of or any basis to expect, nor has Seller received, any citation, directive, inquiry, notice, Order, summons, warning or other communication that relates to Hazardous Activity, Hazardous Materials, or any alleged, actual, or potential violation or failure to comply with any Environmental Law, or of any alleged, actual, or potential obligation to undertake or bear the cost of any Environmental, Health and Safety Liabilities with respect to any Facility or property or asset (whether real, personal or mixed) in which Seller has or had an interest, or with respect to any property or facility to which Hazardous Materials generated, manufactured, refined, transferred, imported, used or processed by Seller, have been transported, treated, stored, handled, transferred, disposed, recycled or received.

(d) Seller has no Environmental, Health and Safety Liabilities with respect to any Facility or, to the Knowledge of Seller, with respect to any other property or asset (whether real, personal or mixed) in which Seller (or any predecessor) has or had an interest or to Seller’s Knowledge, at any property geologically or hydrologically adjoining any Facility or any such other property or asset.

(e) With the exception of propane stored in above-ground storage tanks or cylinders, there are no Hazardous Materials present on or in the Environment at any Facility or to the knowledge of Seller, or at any geologically or hydrologically adjoining property, including any Hazardous Materials contained in barrels, above ground or under ground storage tanks, landfills, land deposits, dumps,

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equipment (whether movable or fixed) or other containers, either temporary or permanent, and deposited or located in land, water, sumps, or any other part of the Facility or to the Knowledge of Seller, such adjoining property, or incorporated into any structure therein or thereon. Seller has not permitted or conducted, or is aware of, any Hazardous Activity conducted with respect to any Facility or any other property or assets (whether real, personal or mixed) in which Seller has or had an interest except in compliance with all applicable Environmental Laws.

(f) There has been no Release or, to the Knowledge of Seller, Threat of Release, of any Hazardous Materials at or from or impacting any Facility in which Seller has or had an interest or at any other location where any Hazardous Materials were generated, manufactured, refined, transferred, produced, imported, used, or processed from or by any Facility in which Seller has or had an interest, or from any other property or asset (whether real, personal or mixed) in which Seller has or had an interest, whether by Seller or any other Person known to Seller.

(g) Seller has delivered to Buyer true and complete copies and results of any reports, studies, analyses, tests, or monitoring in Seller’s possession pertaining to Hazardous Materials or Hazardous Activities in, on, or under the Facilities in which Seller has or had an interest, or concerning compliance, by Seller with Environmental Laws.

(h) For purposes of the representations and warranties pertaining to the adjacent properties to the Land referenced in this Section 3.21, “Knowledge of Seller” shall be limited to actual knowledge, without inquiry, as neither Kerry Tatelman, Wayne Riguidel nor Ben Clarke have conducted any investigation regarding adjacent properties to the Land.

3.22 Employees.

(a) Schedule 3.22(a) contains a complete and accurate list of the following information for each employee, of Seller, including each employee on leave of absence or layoff status: employer; name; job title; date of hiring or engagement; date of commencement of employment or engagement; current compensation paid or payable and any change in compensation since December 31, 2006; sick and vacation leave that is accrued but unused; and service credited for purposes of vesting and eligibility to participate under any Employee Plan, or any other employee or director benefit plan.

(b) To the Knowledge of Seller, no employee of Seller is bound by any Contract that purports to limit the ability of such employee (i) to engage in or continue or perform any conduct, activity, duties or practice relating to the Purchased Business or (ii) to assign to Seller or to any other Person any rights to any invention, improvement, or discovery. To the Knowledge of Seller, no former or current employee of Seller is a party to, or is otherwise bound by, any Contract that in any way adversely affected, affects, or will affect the ability of Seller or Buyer to conduct the Purchased Business as heretofore carried on by Seller.

3.23 Labor Disputes; Compliance.

(a) Seller has complied in all material respects with all Legal Requirements relating to employment practices, terms and conditions of employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining and other requirements under applicable law, the payment of Canadian Pension Plan and similar Taxes and occupational safety and health. Seller is not liable for the payment of any Taxes, fines, penalties, or other amounts, however designated, for failure to comply with any of the foregoing Legal Requirements.

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(b) Except as disclosed in Schedule 3.24(b), (i) Seller has not been, and is not now, a party to any collective bargaining agreement or other labor contract; (ii) since December 31, 2004, there has not been, there is not presently pending or existing, and to Seller’s Knowledge, there is not threatened, any strike, slowdown, picketing, work stoppage or employee grievance process involving Seller; (iii) to Seller’s Knowledge, no event has occurred or circumstance exists that could provide the basis for any work stoppage or other labor dispute; (iv) there is not pending or, to Seller’s Knowledge, threatened against or affecting Seller any Proceeding relating to the alleged violation of any Legal Requirement pertaining to labor relations or employment matters, including any charge or complaint filed with a Governmental Body, and there is no organizational activity or other labor dispute against or affecting Seller or the Facilities; (v) no application or petition for an election of or for certification of a collective bargaining agent is pending; (vi) no grievance or arbitration Proceeding exists that might have an adverse effect upon Seller or the conduct of its business; and (vii) there is no lockout of any employees by Seller, and no such action is contemplated by Seller.

3.24 Intellectual Property Assets.

(a) The term “Intellectual Property Assets” means all intellectual property owned or licensed (as licensor or licensee) by Seller in which Seller has a proprietary interest, including:

(i) Seller’s business name, all trade names, registered and unregistered trademarks, service marks and applications (collectively, “Marks”);

(ii) all patents, patent applications and inventions and discoveries that may be patentable (collectively, “Patents”);

(iii) all registered and unregistered copyrights in both published works and unpublished works (collectively, “Copyrights”);

(iv) all rights in mask works;

(v) all know-how, trade secrets, confidential or proprietary information, customer lists, Software, technical information, data, process technology, plans, drawings and blue prints (collectively, “Trade Secrets”); and

(vi) all rights in internet web sites and internet domain names presently used by Seller (collectively, “Net Names”).

(b) Schedule 3.24(b) contains a complete and accurate list and summary description, including any royalties paid or received by Seller, and Seller has delivered to Buyer accurate and complete copies, of all Seller Contracts relating to the Intellectual Property Assets, except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available Software programs with a value of less than $500.00 under which Seller is the licensee. There are no outstanding and, to Seller’s Knowledge, no threatened disputes or disagreements with respect to any such Contract.

(c) Except as set forth in Schedule 3.24(c), the Intellectual Property Assets are all those necessary for the operation of Seller’s business as it is currently conducted. Seller is the owner or licensee of all right, title and interest in and to each of the Intellectual Property Assets, free and clear of all Encumbrances, and has the right to use without payment to a Third Party all of the Intellectual Property Assets, other than in respect of licenses listed in Schedule 3.24(c) and except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available Software programs with a value of less than $500.00 under which Seller is the licensee.

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(d) Schedule 3.24(d) contains a complete and accurate list and summary description of all Patents. To the Knowledge of Seller, there are no inventions or discoveries of Seller that may be patentable.

(e) (i) Schedule 3.24(e) contains a complete and accurate list and summary description of all Marks.

(ii) All Marks which are registered with the Canadian Intellectual Property Office, are currently in compliance with all formal Legal Requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications), are valid and enforceable and are not subject to any maintenance fees or taxes or actions falling due within ninety (90) days after the Closing Date.

(iii) No Mark which is registered with the Canadian Intellectual Property Office has been or is now involved in any opposition, invalidation or cancellation Proceeding and, to Seller’s Knowledge, no such action is threatened with respect to any of the Marks.

(iv) To Seller’s Knowledge, there is no potentially interfering trademark or trademark application of any other Person.

(v) No Mark is infringed or, has been challenged or threatened in any way. None of the Marks has been alleged to infringe any trade name, trademark or service mark of any other Person.

(f) Seller has no registered Copyrights.

(g) Seller has good title to and an absolute right to use the Trade Secrets. To Seller’s Knowledge, the Trade Secrets have not been used, divulged or appropriated either for the benefit of any Person (other than Seller) or to the detriment of Seller. No Trade Secret is subject to any adverse claim or has been challenged or threatened in any way or, to the Seller’s Knowledge, infringes any intellectual property right of any other Person.

(h) Schedule 3.24(h) contains a complete and accurate list and summary description of all Net Names.

(ii) All Net Names have been registered in the name of Seller (or its legal predecessor, 57151 Manitoba Ltd.) and are to the Knowledge of the Seller in compliance with all formal Legal Requirements.

(iii) No Net Name has been or is now involved in any dispute, opposition, invalidation or cancellation Proceeding and, to Seller’s Knowledge, no such action is threatened with respect to any Net Name.

(iv) To Seller’s Knowledge, there is no domain name application pending of any other person which would or would potentially interfere with or infringe any Net Name.

(v) No Net Name is infringed or, to Seller’s Knowledge, has been challenged, interfered with or threatened in any way. No Net Name has been alleged to interfere with or infringe or to the Knowledge of Seller, infringes the trademark, copyright or domain name of any other Person.

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3.25 Relationships with Related Persons. Except as disclosed in Schedule 3.25, neither Seller nor any Related Person of Seller has, or since December 31, 2005, has had, any interest in any property (whether real, personal or mixed and whether tangible or intangible) used in or pertaining to Seller’s business. Neither Seller nor any Related Person of Seller owns, or since December 31, 2005, has owned, of record or as a beneficial owner, an equity interest or any other financial or profit interest in any Person that has (a) had business dealings or a material financial interest in any transaction with Seller other than business dealings or transactions disclosed in Schedule 3.25, each of which has been conducted in the Ordinary Course of Business with Seller at substantially prevailing market prices and on substantially prevailing market terms, or (b) engaged in competition with Seller with respect to any line of the products or services of Seller (a “Competing Business”) in any market presently served by Seller, except for ownership of less than one percent (1%) of the outstanding capital stock of any Competing Business that is publicly traded on any recognized exchange or in the over-the-counter market. Except as set forth in Schedule 3.25, neither Seller nor any Related Person of Seller is a party to any Contract with, or has any claim or right against, Seller.

3.26 Brokers or Finders. Neither Seller nor any of its Representatives have incurred any obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payments in connection with the sale of Seller’s business or the Assets or the Contemplated Transactions.

3.27 Solvency.

(a) Seller is not now insolvent and will not be rendered insolvent by any of the Contemplated Transactions. As used in this section, “insolvent” means that the sum of the debts and other probable Liabilities of Seller exceeds the present fair saleable value of Seller’s assets.

(b) Immediately after giving effect to the consummation of the Contemplated Transactions: (i) Seller will be able to pay its Liabilities as they become due in the usual course of its business; (ii) Seller will have assets (calculated at fair market value) that exceed its Liabilities; and (iii) taking into account all pending and threatened litigation, final judgments against Seller in actions for money damages are not reasonably anticipated to be rendered at a time when, or in amounts such that, Seller will be unable to satisfy any such judgments promptly in accordance with their terms (taking into account the maximum probable amount of such judgments in any such actions and the earliest reasonable time at which such judgments might be rendered) as well as all other obligations of Seller. The cash available to Seller, after taking into account all other anticipated uses of the cash, will be sufficient to pay all such debts and judgments promptly in accordance with their terms.

3.28 Disclosure.

(a) No representation or warranty or other statement made by Seller in this Agreement, any Schedule, any supplement to any Schedule, the certificates delivered pursuant to Section 2.7(a) or otherwise in connection with the Contemplated Transactions contains any untrue statement or omits to state a material fact necessary to make any of them, in light of the circumstances in which it was made, not misleading.

(b) Seller does not have Knowledge of any fact that has specific application to Seller (other than general economic or industry conditions) and that may materially adversely affect the assets, business, prospects, financial condition or results of operations of the Purchased Business that has not been set forth in this Agreement or the Schedules delivered by Seller.

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3.29 Residency. Seller is not a non-resident of Canada for the purposes of The Income Tax Act (Canada).

3.30 GST Registration. Seller is a registrant for purposes of the Excise Tax Act (Canada), whose registration number is 106 393 424 RT0001.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller as follows:

4.1 Organization and Good Standing. Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Province of Nova Scotia, with full corporate power and authority to conduct its business as it is now conducted and will on or before the Closing Date be qualified to do business in Manitoba.

4.2 Authority; No Conflict.

(a) This Agreement constitutes the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. Upon the execution and delivery by Buyer of each agreement to be executed or delivered by Buyer at Closing (collectively, the “Buyer’s Closing Documents”), each of the Buyer’s Closing Documents will constitute the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its respective terms. Buyer has the absolute and unrestricted right, power and authority to execute and deliver this Agreement and the Buyer’s Closing Documents and to perform its obligations under this Agreement and the Buyer’s Closing Documents, and such action has been duly authorized by all necessary corporate action.

(b) Neither the execution and delivery of this Agreement by Buyer nor the consummation or performance of any of the Contemplated Transactions by Buyer will give any Person the right to prevent, delay or otherwise interfere with any of the Contemplated Transactions pursuant to:

(i) any provision of Buyer’s Governing Documents;

(ii) any resolution adopted by the board of directors or the shareholders of Buyer;

(iii) any Legal Requirement or Order to which Buyer may be subject; or

(iv) any Contract to which Buyer is a party or by which Buyer may be bound.

Buyer is not and will not be required to obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions.

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4.3 Certain Proceedings. There is no pending Proceeding that has been commenced against Buyer and that challenges, or may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the Contemplated Transactions. To Buyer’s Knowledge, no such Proceeding has been threatened.

4.4 Brokers or Finders. Neither Buyer nor any of its Representatives have incurred any obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with the Contemplated Transactions.

4.5 GST Registration. Buyer is a registrant for purposes of the Excise Tax Act (Canada), whose registration number is 861641710RT0001.

ARTICLE V

CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE

Buyer’s obligation to purchase the Assets and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part):

5.1 Accuracy of Representations. All of Seller’s representations and warranties in this Agreement (considered collectively), and each of such representations and warranties (considered individually), shall have been accurate in all material respects as of the date of this Agreement, and shall be accurate in all material respects as of the time of the Closing as if then made, without giving effect to any supplement to any Schedule delivered by Seller hereunder.

5.2 Seller’s Performance. All of the covenants and obligations that Seller are required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), shall have been duly performed and complied with in all material respects.

5.3 Consents. Each of the Consents identified in Schedule 5.3 (the “Material Consents”) shall have been obtained and shall be in full force and effect.

5.4 Additional Documents. Seller shall have caused the documents and instruments required by Section 2.10(a) and the following documents to be delivered (or tendered subject only to Closing) to Buyer:

(a) An opinion of Fillmore Riley LLP, dated the Closing Date, in the form of Exhibit 5.4(a);

(b) If requested by Buyer, any Consents or other instruments that may be required to permit Buyer’s qualification in each jurisdiction in which Seller is licensed or qualified to do business as an extra-provincial or foreign corporation under the name “Mayer Fibre Tube & Core” or any derivative thereof;

(c) Releases of all Encumbrances on the Assets, other than Permitted Encumbrances;

(d) Applications for the Clearance Certificates listed in Sections 2.10(a)(xi) and (xii); and

(e) Such other documents as Buyer may reasonably request for the purpose of:

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(i) evidencing the accuracy of any of Seller’s representations and warranties;

(ii) evidencing the performance by Seller of, or the compliance by Seller with, any covenant or obligation required to be performed or complied with by Seller;

(iii) evidencing the satisfaction of any condition referred to in this Article V; or

(iv) otherwise facilitating the consummation or performance of any of the Contemplated Transactions.

5.5 No Proceedings. There shall not have commenced or threatened against Buyer, or against any Related Person of Buyer, any Proceeding (a) involving any challenge to, or seeking Damages or other relief in connection with, any of the Contemplated Transactions, or (b) that may have the effect of preventing, delaying, making illegal, imposing limitations or conditions on or otherwise interfering with any of the Contemplated Transactions.

5.6 No Conflict. Neither the consummation nor the performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time), contravene or conflict with or result in a violation of or cause Buyer or any Related Person of Buyer to suffer any adverse consequence under (a) any applicable Legal Requirement or Order or (b) any Legal Requirement or Order that has been published, introduced or otherwise proposed by or before any Governmental Body.

5.7 Governmental Authorizations. Buyer shall have received such Governmental Authorizations as are necessary or desirable to allow Buyer to operate the Assets from and after the Closing.

5.8 No Material Adverse Effect. Between the date of this Agreement and the Closing Date, there shall have been no material adverse effect on the Assets or the condition (financial or otherwise), operations, prospects or results of operations of the Purchased Business.

Buyer may waive any condition specified in this Article V if it executes a writing so stating at or prior to the Closing.

ARTICLE VI

CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO CLOSE

Seller’s obligation to sell the Assets and to take the other actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller in whole or in part):

6.1 Accuracy of Representations. All of Buyer’s representations and warranties in this Agreement (considered collectively), and each of such representations and warranties (considered individually), shall have been accurate in all material respects as of the date of this Agreement and shall be accurate in all material respects as of the time of the Closing as if then made.

6.2 Buyer’s Performance. All of the covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), shall have been performed and complied with in all material respects.

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6.3 Consents. Each of the Consents identified in Schedule 6.3 shall have been obtained and shall be in full force and effect.

6.4 Additional Documents. Buyer shall have caused the documents and instruments required by Section 2.10(b) and such other documents to be delivered (or tendered subject only to Closing) as Seller may reasonably request for the purpose of (i) evidencing the accuracy of any representation or warranty of Buyer, (ii) evidencing the performance by Buyer of, or the compliance by Buyer with, any covenant or obligation required to be performed or complied with by Buyer, or (iii) evidencing the satisfaction of any condition referred to in this Article VI; or otherwise facilitating the consummation or performance of the Contemplated Transactions.

6.5 No Proceedings or Injunctions. There shall not be in effect any Legal Requirement or any injunction or other Order that (a) prohibits the consummation of the Contemplated Transactions and (b) has been adopted or issued, or has otherwise become effective, since the date of this Agreement. There shall not have commenced or threatened against Seller, or against any Related Person of Seller, any Proceeding (a) involving any challenge to, or seeking Damages or other relief in connection with, any of the Contemplated Transactions, or (b) that may have the effect of preventing, delaying, making illegal, imposing limitations or conditions on or otherwise interfering with any of the Contemplated Transactions.

Seller may waive any condition specified in this Article VI if it executes a writing so stating at or prior to the Closing.

ARTICLE VII

ADDITIONAL COVENANTS

7.1 Employees and Employee Benefits.

(a) Active Employees. For the purpose of this Agreement, the term “Active Employees” shall mean all employees employed on the Closing Date by Seller for its business including employees on temporary leave of absence, including family medical leave, parental leave, military leave, temporary disability or sick leave, but excluding employees on long-term disability leave.

(b) Employment of Active Employees by Buyer.

Seller shall provide Buyer with an up-to-date list of the names of the Active Employees at least two (2) Business Days and not more than four (4) Business Days prior to the Closing Date. Seller has had fewer than fifty (50) employees during the preceding four (4) weeks. At Closing, Seller shall terminate fewer than fifty (50) employees, and Subsection 67(1) of the Employment Standards Code shall not apply to said terminations. Buyer covenants and agrees that it shall offer employment to all Active Employees, except those Active Employees specifically listed in Schedule 7.1(b) (the “Severance Employees”), effective as at the Time of Closing, on substantially the same terms and conditions of employment (and in any event, not less favorable) as are then applicable to the Active Employees in relation to compensation, benefits, and which shall recognize the service of the Active Employees with Seller. Seller shall indemnify and hold harmless Buyer from and against all Liability suffered or incurred by Buyer in connection with or pursuant to any claims by any Active Employees (including the Severance Employees) and any employee of Seller on long-term disability leave other than claims (or causes of claims) by Active Employees against Buyer arising after the Closing relating solely to Buyer’s employment of said Active Employees after the Closing and other than claims arising out of a failure on the part of Buyer to fulfill its obligations in this Section 7.1(b) of this Agreement to offer continued employment to all Active Employees other than the Severance Employees. No employee of the Seller shall be entitled to any rights under this subsection or under any other provisions of this Agreement. Seller shall employ all of the Active Employees until the Closing, except for any Active Employees who prior to the Closing:

(a) are terminated for cause;

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(b) are terminated with Buyers consent, which consent shall not be unreasonably withheld;

(c) voluntarily resign; or

(d) retire.

Seller shall not attempt in any way to discourage any of the Active Employees from accepting any offer of employment to be made by Buyer.

(c) Salaries and Benefits.

(i) Seller shall be responsible for: (A) the payment of all wages and other remuneration due to Active Employees with respect to their services as employees of Seller through the close of business on the Closing Date, including pro rata bonus payments and all vacation pay earned prior to the Closing Date; (ii) Seller shall be liable for any claims made or incurred by Active Employees and their beneficiaries in respect of events which occurred prior to the Closing Date under the Employee Plans whether or not those claims are made before or after the Closing Date. For purposes of the immediately preceding sentence, a charge will be deemed incurred, in the case of hospital, medical or dental benefits, when the services that are the subject of the charge are performed and, in the case of other benefits (such as disability or life insurance), when an event has occurred or when a condition has been diagnosed that entitles the employee to the benefit.

(d) Seller’s Retirement and Savings Plans. Seller maintains no retirement plans or savings plans other than administering an employee RRSP Plan that is employee funded, with no employer contribution.

(e) No Transfer of Assets. Neither Seller nor Seller’s Related Persons will make any transfer of pension or other employee benefit plan assets to Buyer.

(f) General Employee Provisions.

(i) Seller and Buyer shall give any notices required by Legal Requirements and take whatever other actions with respect to the plans, programs and policies described in this Section 7.1 as may be necessary to carry out the arrangements described in this Section 7.1.

(ii) Seller shall provide Buyer with such plan documents and summary plan descriptions, employee data or other information as may be reasonably required to carry out the arrangements described in this Section 7.1.

(iii) If any of the arrangements described in this Section 7.1 are determined by a Governmental Body to be prohibited by law, Seller and Buyer shall modify such arrangements to as closely as possible reflect their expressed intent and retain the allocation of economic benefits and burdens to the parties contemplated herein in a manner that is not prohibited by law.

7.2 Payment of Other Retained Liabilities. Seller shall promptly pay, or make adequate provision for the payment, in full of all of the Retained Liabilities and other Liabilities of Seller under

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this Agreement. If any such Liabilities are not so paid or provided for, or if Buyer reasonably determines that failure to make any payments will impair Buyer’s use or enjoyment of the Assets or conduct of the business previously conducted by Seller with the Assets, Buyer may, at any time after the Closing Date and after giving Seller ten (10) days prior written notice (the “Notice Period”), elect to make all such payments directly (but shall have no obligation to do so) if said payments are not made by Seller within the Notice Period and set off and deduct the full amount of all such payments from amounts that become due Seller under any agreements between Seller and Buyer.

7.3 Restrictions on Seller Dissolution and Distributions. Seller shall not dissolve, or make any distribution of the proceeds received pursuant to this Agreement, until the lapse of more than eighteen (18) months after the Closing Date.

7.4 Removing Excluded Assets. Within three (3) Business days after the Closing Date, Seller shall remove all Excluded Assets from all Facilities and other Real Property to be occupied by Buyer. Such removal shall be done in such manner as to avoid any damage to the Facilities and other properties to be occupied by Buyer and any disruption of the business operations to be conducted by Buyer after the Closing. Any damage to the Assets or to the Facilities resulting from such removal shall be paid by Seller. Should Seller fail to remove the Excluded Assets as required by this Section, Buyer shall have the right, but not the obligation, (a) to remove the Excluded Assets at Seller’s sole cost and expense, (b) to store the Excluded Assets and to charge Seller all storage costs associated therewith, (c) to treat the Excluded Assets as unclaimed and to proceed to dispose of the same under the laws governing unclaimed property, or (d) to exercise any other right or remedy conferred by this Agreement or otherwise available at law or in equity. Seller shall promptly reimburse Buyer for all costs and expenses incurred by Buyer in connection with any Excluded Assets not removed by Seller on or before the Closing Date.

7.5 Reports and Returns. Seller shall promptly after the Closing prepare and file all reports and returns required by Legal Requirements relating to the business of Seller as conducted using the Assets, to and including the Effective Time.

7.6 Customer and Other Business Relationships. Commencing on the Closing Date and continuing for a period of twelve (12) months thereafter, Seller will cooperate with Buyer in its efforts to continue and maintain for the benefit of Buyer those business relationships of Seller existing prior to the Closing and relating to the business to be operated by Buyer after the Closing, including relationships with lessors, employees, regulatory authorities, licensors, customers, suppliers and others, and Seller will satisfy the Retained Liabilities in a manner that is not detrimental to any of such relationships. Seller will refer to Buyer all inquiries relating to such business. Neither Seller nor any of its officers, employees, agents or shareholders shall take any action that would tend to diminish the value of the Assets after the Closing or that would interfere with the business of Buyer to be engaged in after the Closing, including disparaging the name or business of Buyer.

7.7 Retention of and Access to Records. After the Closing Date, Buyer shall retain for a period of six (6) years from the Closing Date, or for such longer period as is required by any Governmental Body those Records of Seller delivered to Buyer. Buyer also shall provide Seller and its Representatives reasonable access thereto, during normal business hours and on at least three days’ prior written notice, to enable them to prepare financial statements or tax returns or deal with tax audits. After the Closing Date, Seller shall provide Buyer and its Representatives reasonable access to Records that are Excluded Assets, during normal business hours and on at least three days’ prior written notice, for any reasonable business purpose specified by Buyer in such notice.

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7.8 Prorations.

Seller and Buyer agree to prorate all taxes and lease payments or other prepaid expenses, paid or owed with respect to the Assets or with respect to any period of time that begins before the Closing Date hereof and ends after the Closing Date. Seller shall pay all such liabilities on or with respect to the Assets to the extent such liabilities and obligations relate to any time period ending 12:00 a.m. on the day immediately before the Closing Date except for the Assumed Liabilities and Buyer shall pay all Assumed Liabilities and all liabilities and obligations on or with respect to the Assets to the extent such liabilities related to periods on and after the Closing Date. Any amounts owing by Buyer to Seller or Seller to Buyer under this Section 7.7 shall be due and paid or adjusted at Closing.

7.9 Further Assurances. The parties shall cooperate reasonably with each other and with their respective Representatives in connection with any steps required to be taken as part of their respective obligations under this Agreement, and shall (a) furnish upon request to each other such further information, (b) execute and deliver to each other such other documents, and (c) do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the Contemplated Transactions.

7.10 Excluded Accounts Receivable. In the event that Buyer receives payment of any of the accounts receivable which are greater than ninety (90) days old, Buyer shall promptly pay any such amounts received to Seller.

7.11 Operation in the Ordinary Course. Between the date of this Agreement and the Closing Date, Seller shall (a) conduct the Purchased Business only in the Ordinary Course of Business, consistent with past practices of Seller including, without limitation, maintenance of inventory levels; (b) use its best efforts to preserve intact the current business organization of Seller and maintain the relations and goodwill with suppliers, customers, landlords, creditors, employees, agents and others having business relationships with Seller; and (c) confer with Buyer concerning operational matters of a material nature.

7.12 Negative Covenants. Between the date of this Agreement and the Closing Date, Seller will not, without the prior consent of Buyer, which shall not be unreasonably withheld, dispose of any fixed or other assets of Seller other than in the Ordinary Course of Business.

7.13 Access and Investigation. Between the date of this Agreement and the Closing Date, Seller will afford Buyer and its representatives full and free access to the Seller’s personnel, properties, contracts, books and records, and other documents and data, and will furnish Buyer with copies of all such contracts, books and records, and other documents and data as Buyer may reasonably request, and it shall furnish Buyer with such additional financial, operating and other data and information as Buyer may reasonably request.

7.14 Exclusivity. Between the date of this Agreement and the Closing Date, Seller shall not, and Seller shall use its best efforts to cause its officers, directors, employees, representatives and agents not to, directly or indirectly, (a) solicit, initiate, engage or participate in or knowingly encourage discussions or negotiations with any person or entity (other than Buyer) concerning any merger, consolidation, sale of material assets, tender offer, recapitalization, accumulation of Seller’s capital stock or other business combination involving Seller or (b) provide any non-public information concerning the Purchased Business or the Assets to any person or entity (other than Buyer). Seller shall immediately notify Buyer of, and shall disclose to Buyer all details of, any inquiries, discussions or negotiations of the nature described in the first sentence of this Section 7.14.

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ARTICLE VIII

INDEMNIFICATION

8.1 SURVIVAL. All representations, warranties, covenants and obligations in this Agreement, the Schedules, any supplements to any Schedule, the certificates delivered pursuant to Section 2.10 (Closing Obligations) and any other certificate or document delivered pursuant to this Agreement shall survive the Closing and the consummation of the Contemplated Transactions, subject to Section 8.6 (Time Limitations). The right to indemnification, reimbursement or other remedy based upon such representations, warranties, covenants and obligations shall not be affected by any investigation (including any environmental investigation or assessment) conducted with respect to, or any Knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with any such representation, warranty, covenant or obligation. Buyer has delivered to Seller copies of all reports that it has received from a Governmental Body relating to the Purchased Assets. The waiver of any condition based upon the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, reimbursement or other remedy based upon such representations, warranties, covenants and obligations.

8.2 Indemnification and Reimbursement by Seller. Seller, will indemnify and hold harmless Buyer, and its Representatives, shareholders, subsidiaries and Related Persons (collectively, the “Buyer Indemnified Persons”), and will reimburse the Buyer Indemnified Persons for any loss, liability, claim, damage, expense (including, without limitation, interest, penalties, costs of investigation and defense and reasonable attorneys’ fees and expenses) or diminution of value, whether or not involving a Third-Party Claim (collectively, “Damages”), arising from or in connection with:

(a) any Breach of any representation or warranty made by Seller in (i) this Agreement or the Plant Lease Agreement, (ii) any Schedule delivered by Seller, (iii) the certificates delivered pursuant to Section 2.10 (Closing Obligations) (for this purpose, each such certificate will be deemed to have stated that Seller’s representations and warranties in this Agreement fulfill the requirements of Section 5.1 (Accuracy of Representations) as of the Closing Date as if made on the Closing Date (iv) any transfer instrument or (v) any other certificate, document, writing or instrument delivered by Seller pursuant to this Agreement or the Plant Lease Agreement;

(b) any Breach of any covenant or obligation of Seller in this Agreement or the Plant Lease Agreement or in any other certificate, document, writing or instrument delivered by Seller pursuant thereto;

(c) any Liability arising out of the ownership or operation of Seller’s business prior to the Effective Time other than the Assumed Liabilities;

(d) any brokerage or finder’s fees or commissions or similar payments based upon any agreement or understanding made, or alleged to have been made, by any Person with Seller (or any Person acting on Seller’s behalf) in connection with any of the Contemplated Transactions;

(e) any claim relating to any product or component thereof manufactured by or shipped, or any services provided by, Seller, in whole or in part, prior to the Closing Date;

(f) any Employee Plan established or maintained by Seller; or

(g) any Retained Liabilities.

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8.3 Indemnification and Reimbursement by Buyer. Buyer will indemnify and hold harmless Seller, and its Representatives, shareholders, subsidiaries and Related Persons (collectively, the “Seller Indemnified Persons”), and will reimburse the Seller Indemnified Persons for any loss, liability, claim, damage, expense (including, without limitation, interest, penalties, costs of investigation and defense and reasonable attorneys’ fees and expenses) or diminution of value, whether or not involving a Third-Party Claim (collectively, “Damages”), arising from or in connection with:

(a) any Breach of any representation or warranty made by Buyer in (i) this Agreement or the Plant Lease Agreement, (ii) any Schedule delivered by Buyer, (iii) the certificates delivered pursuant to Section 2.10 (Closing Obligations) (for this purpose, each such certificate will be deemed to have stated that Buyer’s representations and warranties in this Agreement fulfill the requirements of Section 6.1 (Accuracy of Representations) as of the Closing Date as if made on the Closing Date or (v) any other certificate, document, writing or instrument delivered by Buyer pursuant to this Agreement or the Plant Lease Agreement;

(b) any Breach of any covenant or obligation of Buyer in this Agreement or in any other certificate, document, writing or instrument delivered by Buyer pursuant to thereto;

(c) any Liability arising out of the Buyer’s ownership or operation of the Purchased Business from and after the Effective Time other than the Retained Liabilities;

(d) any claim by any Person for brokerage or finder’s fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by such Person with Buyer (or any Person acting on Buyer’s behalf) in connection with any of the Contemplated Transactions;

(e) any claim relating to any product or component thereof manufactured by or shipped, or any services provided by Buyer, in whole or in part, from and after the Closing Date not arising from a Retained Liability or a breach by Seller of any representation, warranty or covenant in this Agreement; and

(f) any Assumed Liabilities.

8.4 Limitations on Amount – Seller. Seller shall have no liability (for indemnification or otherwise) with respect to claims under Section 8.2(a) until the total of all Damages with respect to such matters exceeds $50,000 CAD and then Seller shall be liable for all Damages from dollar one. Seller shall not be obligated to make any payments for indemnification for Damages arising under Section 8.2(a) in excess of $4,000,000. However, this Section 8.4 will not apply to claims under Section 8.2(b) through (g) or to matters arising in respect of Sections 3.8 (Title to Assets; Encumbrances), 3.25 (Brokers or Finders), or to any intentional Breach of any of Seller’s representations and warranties, or any intentional Breach by Seller of any covenant or obligation, and Seller will be liable for all Damages with respect to such Breaches.

8.5 Limitations on Amount – Buyer. Buyer will have no liability (for indemnification or otherwise) with respect to claims under Section 8.3(a) until the total of all Damages with respect to such matters exceeds $50,000 CAD and then Buyer shall be liable for all Damages from dollar one. Buyer shall not be obligated to make any payment for indemnification for Damages under 8.3(a) in excess of the Purchase Price. However, this Section 8.5 will not apply to claims under Section 8.3(b) through (e) or matters arising in respect of Section 4.4 (Brokers or Finders) or to any intentional Breach of any of Buyer’s representations and warranties, any intentional Breach by Buyer of any covenant or obligation, and Buyer will be liable for all Damages with respect to such Breaches.

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8.6 Time Limitations on Survival of Representations Warranties and Covenants.

The covenants, representations and warranties and the obligations of indemnification herein made by the Seller and/or the Buyer, as the case may be, contained in this agreement, or contained in any document or certificate given in order to carry out the transactions contemplated hereby, will survive the closing of the purchase of the Assets, provided for herein and, notwithstanding such closing, shall continue in full force and effect for the benefit of the other party hereto, subject to the following provisions of this section:

(a) Except as provided in subparagraphs (b) and (c) of this section, such obligation shall continue for twenty-four (24) months following the Closing Date. The party alleging breach and/or claiming indemnification hereunder shall give the other party notice of any claim with such particularity as is reasonably possible as soon as such party has reasonable grounds for believing that a breach has been committed and/or a claim for indemnification is available and, in any event, such notice shall be given not later than the end period of the twenty-four (24) months following the Closing Date.

(b) Any Claim which is based on or relates to the breach of a representation, warranty, covenant or a right to indemnification in respect to a tax liability shall extend until the expiration of the period (if any) during which an assessment, re- assessment or other form of recognized documents assessing liability for tax, interest or penalty under applicable tax legislation could be issued, assuming that no waiver or similar document is filed to extend such period as otherwise determined.

(c) Any Claim which is based on or relates to the title to the Assets or the Retained Liabilities, Article VII regarding Additional Covenants, Article IX regarding Confidentiality, or which is based on intentional misrepresentation or fraud by Seller or Buyer, as the case may be, may be brought at any time.

After the expiration of the period of time referred to in subparagraph (a) of this section, and subject to the provisions of subparagraphs (b) and (c) of this section, the obligations of the Seller and/or the Buyer, as the case may be, with respect to the representations, warranties, covenants and/or indemnification obligations contained in this agreement or in any document or certificate given in order to carry out the transactions contemplated hereby, and except with respect to any claims of which notice has been validly given in accordance with this section, shall terminate and the parties shall have no further obligations to one another in respect thereto;

8.7 Third-Party Claims.

(a) Promptly after receipt by a Person entitled to indemnity under Section 8.2 (Indemnification and Reimbursement by Seller) or Section 8.3, (Indemnification and Reimbursement by Buyer) (an “Indemnified Person”) of notice of the assertion of a Third-Party Claim against it, such Indemnified Person shall give notice to the Person obligated to indemnify under such Section (an “Indemnifying Person”) of the assertion of such Third-Party Claim, provided that the failure to notify the Indemnifying Person will not relieve the Indemnifying Person of any liability that it may have to any Indemnified Person, except to the extent that the Indemnifying Person demonstrates that the defense of such Third-Party Claim is prejudiced by the Indemnified Person’s failure to give such notice.

(b) If an Indemnified Person gives notice to the Indemnifying Person pursuant to Section 8.7(a) of the assertion of a Third-Party Claim, the Indemnifying Person shall be entitled to participate in the defense of such Third-Party Claim and, to the extent that it wishes (unless (i) the Indemnifying Person is also a Person against whom the Third-Party Claim is made and the Indemnified Person determines in good faith that joint representation would be inappropriate, or (ii) the Indemnifying

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Person fails to provide reasonable assurance to the Indemnified Person of its financial capacity to defend such Third-Party Claim and provide indemnification with respect to such Third-Party Claim), to assume the defense of such Third-Party Claim with counsel satisfactory to the Indemnified Person. After notice from the Indemnifying Person to the Indemnified Person of its election to assume the defense of such Third-Party Claim, the Indemnifying Person shall not, so long as it diligently conducts such defense, be liable to the Indemnified Person under this Article VIII for any fees of other counsel or any other expenses with respect to the defense of such Third-Party Claim, in each case subsequently incurred by the Indemnified Person in connection with the defense of such Third-Party Claim, other than reasonable costs of investigation. If the Indemnifying Person assumes the defense of a Third-Party Claim, (i) such assumption will establish conclusively for purposes of this Agreement that the claims made in that Third-Party Claim are within the scope of and subject to indemnification, and (ii) no compromise or settlement of such Third-Party Claims may be effected by the Indemnifying Person without the Indemnified Person’s Consent unless (A) there is no finding or admission of any violation of Legal Requirement or any violation of the rights of any Person, (B) the sole relief provided is monetary damages that are paid in full by the Indemnifying Person, and (C) the Indemnified Person shall have no liability with respect to any compromise or settlement of such Third-Party Claims effected without its Consent (which may not be unreasonably withheld). If notice is given to an Indemnifying Person of the assertion of any Third-Party Claim and the Indemnifying Person does not, within ten (10) days after the Indemnified Person’s notice is given, give notice to the Indemnified Person of its election to assume the defense of such Third-Party Claim, the Indemnifying Person will be bound by any determination made reasonably and in good faith in such Third-Party Claim or any compromise or settlement effected reasonably and in good faith by the Indemnified Person. (c) Notwithstanding the foregoing, if an Indemnified Person determines in good faith that there is a reasonable probability that a Third-Party Claim may adversely affect it or its Related Persons other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the Indemnified Person may, by notice to the Indemnifying Person, assume the exclusive right to defend, compromise or settle such Third-Party Claim, but the Indemnifying Person will not be bound by any determination of any Third-Party Claim so defended for the purposes of this Agreement or any compromise or settlement effected without its Consent (which may not be unreasonably withheld).

(c) With respect to any Third-Party Claim subject to indemnification under this Article VIII: (i) both the Indemnified Person and the Indemnifying Person, as the case may be, shall keep the other Person fully informed of the status of such Third-Party Claim and any related Proceedings at all stages thereof where such Person is not represented by its own counsel; and (ii) the parties agree (each at its own expense) to render to each other such assistance as they may reasonably require of each other and to cooperate in good faith with each other in order to ensure the proper and adequate defense of any Third-Party Claim.

(d) Notwithstanding the provisions of Section 10.4 (Jurisdiction; Service of Process), Seller hereby consents to the nonexclusive jurisdiction of any court in which a Proceeding in respect of a Third-Party Claim is brought against any Buyer Indemnified Person for purposes of any claim that a Buyer Indemnified Person may have under this Agreement with respect to such Proceeding or the matters alleged therein and agree that process may be served on Seller with respect to such a claim anywhere in the world.

(e) With respect to any Third-Party Claim subject to indemnification under this Article VIII, the parties agree to cooperate in such a manner as to preserve in full (to the extent possible) the confidentiality of all Confidential Information and the attorney-client and work-product privileges. In connection therewith, each party agrees that: (i) it will use its Best Efforts, in respect of any Third-Party Claim in which it has assumed or participated in the defense, to avoid production of Confidential Information (consistent with applicable law and rules of procedure); and (ii) all communications between

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any party hereto and counsel responsible for or participating in the defense of any Third-Party Claim shall, to the extent possible, be made so as to preserve any applicable attorney-client or work-product privilege.

8.8 Other Claims. A claim for indemnification for any matter not involving a Third-Party Claim may be asserted by notice from the Indemnified Person to the Indemnifying Person within the time limits herein provided together with the information relied upon by the Indemnified Person to substantiate the claim. The Indemnifying Person shall have a period of fifteen (15) days from receipt of the notice and information as aforesaid to make such investigation of the claim as is considered necessary and the parties shall cooperate with the exchange of any information reasonably requested to substantiate or clarify the claim. At the end of the fifteen (15) day period of investigation, if both parties agree to the amount of the claim, the Indemnifying Party shall immediately pay to the Indemnified Party the full agreed amount of the claim. If the claim or any portion thereof is in dispute, Caraustar may exercise its set-off rights under Section 8.11 and the parties may agree to refer the matter to binding arbitration in accordance with the provisions of the Arbitration Act of Manitoba.

8.9 Exclusivity. The provision of this Article VIII shall apply to any claim for breach of any covenant, representation, warranty or other provision of this Agreement or any agreement, certificate or other document delivered pursuant hereto (other than a claim for specific performance or injunctive relief) with the intent that all such Claims shall be subject to the limitations and other provisions contained in this Article VIII.

8.10 Quantification of Damages. The amount of any Damages which may be claimed by either party hereunder shall be calculated to be the cost or loss to such party after giving effect to any insurance proceeds received by such party in relation to the matter which is the subject of the claim (net of expenses incurred in obtaining such recovery or benefit).

8.11 Right of Set-Off. Buyer shall have the right to satisfy any amounts owing by Seller to Buyer pursuant to this Agreement, including amounts owing by Seller to Buyer pursuant to Article VIII hereof, against amounts due and payable to Seller under the Plant Lease Agreement (including the purchase price for the Plant Lease Property upon Buyer’s exercise of its option to purchase the Plant Lease Property).

ARTICLE IX

CONFIDENTIALITY

9.1 Definition of Confidential Information.

(a) As used in this Article IX, the term “Confidential Information” includes any and all of the following information of Seller or Buyer that has been or may hereafter be disclosed in any form, whether in writing, orally, electronically or otherwise, or otherwise made available by observation, inspection or otherwise by either party (Buyer on the one hand or Seller on the other hand) or its Representatives (collectively, a “Disclosing Party”) to the other party or its Representatives (collectively, a “Receiving Party”):

(i) all information that is a trade secret under applicable trade secret or other law;

(ii) all information concerning product specifications, data, know-how, formulae, compositions, processes, designs, sketches, photographs, graphs, drawings, samples, inventions and ideas, past, current and planned research and development, current and planned manufacturing or

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distribution methods and processes, customer lists, current and anticipated customer requirements, price lists, market studies, business plans, computer hardware, Software and computer software and database technologies, systems, structures and architectures;

(iii) all information concerning the business and affairs of the Disclosing Party (which includes historical and current financial statements, financial projections and budgets, tax returns and accountants’ materials, historical, current and projected sales, capital spending budgets and plans, business plans, strategic plans, marketing and advertising plans, publications, client and customer lists and files, contracts, the names and background of key personnel, any information regarding employees including any personal information regarding such employees, and personnel training techniques and materials, however documented), and all information obtained from review of the Disclosing Party’s documents or property or discussions with the Disclosing Party regardless of the form of the communication; and

(iv) all notes, analyses, compilations, studies, summaries and other material prepared by the Receiving Party to the extent containing or based, in whole or in part, upon any information included in the foregoing.

(b) Any trade secrets of a Disclosing Party shall also be entitled to all of the protections and benefits under applicable trade secret law and any other applicable law. If any information that a Disclosing Party deems to be a trade secret is found by a court of competent jurisdiction not to be a trade secret for purposes of this Article, such information shall still be considered Confidential Information of that Disclosing Party for purposes of this Article to the extent included within the definition. In the case of trade secrets, each of Buyer, Seller hereby waives any requirement that the other party submit proof of the economic value of any trade secret or post a bond or other security.

9.2 Restricted Use of Confidential Information.

(a) Each Receiving Party acknowledges the confidential and proprietary nature of the Confidential Information of the Disclosing Party and agrees that such Confidential Information (i) shall be kept confidential by the Receiving Party; (ii) shall not be used for any reason or purpose other than to evaluate and consummate the Contemplated Transactions; and (iii) without limiting the foregoing, shall not be disclosed by the Receiving Party to any Person, except in each case as otherwise expressly permitted by the terms of this Agreement or with the prior written consent of an authorized representative of Seller with respect to Confidential Information of Seller (each, a “Seller Contact”) or an authorized representative of Buyer with respect to Confidential Information of Buyer (each, a “Buyer Contact”). Each of Buyer and Seller shall disclose the Confidential Information of the other party only to its Representatives who require such material for the purpose of evaluating the Contemplated Transactions and are informed by Buyer or Seller, as the case may be, of the obligations of this Article with respect to such information. Each of Buyer and Seller shall (iv) enforce the terms of this Article as to its respective Representatives; (v) take such action to the extent necessary to cause its Representatives to comply with the terms and conditions of this Article; and (vi) be responsible and liable for any breach of the provisions of this Article VIII by it or its Representatives.

(b) For a period of five (5) years following the Closing Date, Seller shall maintain as confidential any Confidential Information (including for this purpose any information of Seller of the type referred to in Sections 9.1(a)(i), (ii) and (iii), whether or not disclosed to Buyer) of Seller relating to any of the Assets or the Assumed Liabilities.

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(c) From and after the Closing, the provisions of Section 9.2(a) above shall not apply to or restrict in any manner Buyer’s use of any Confidential Information of Seller relating to any of the Assets or the Assumed Liabilities.

9.3 Exceptions. Sections 9.2(a) and (b) do not apply to that part of the Confidential Information of a Disclosing Party that a Receiving Party demonstrates (a) was, is or becomes generally available to the public other than as a result of a breach of this Article or the Confidentiality Agreement by the Receiving Party or its Representatives; (b) was or is developed by the Receiving Party independently of and without reference to any Confidential Information of the Disclosing Party; or (c) was, is or becomes available to the Receiving Party on a non-confidential basis from a Third Party not bound by a confidentiality agreement or any legal, fiduciary or other obligation restricting disclosure. Seller shall not disclose any Confidential Information of Seller relating to any of the Assets or the Assumed Liabilities in reliance on the exceptions in clauses (b) or (c) above.

9.4 Legal Proceedings. If a Receiving Party becomes compelled in any Proceeding or is requested by a Governmental Body having regulatory jurisdiction over the Contemplated Transactions to make any disclosure that is prohibited or otherwise constrained by this Article, that Receiving Party shall provide the Disclosing Party with prompt notice of such compulsion or request so that it may seek an appropriate protective order or other appropriate remedy or waive compliance with the provisions of this Article. In the absence of a protective order or other remedy, the Receiving Party may disclose that portion (and only that portion) of the Confidential Information of the Disclosing Party that, based upon advice of the Receiving Party’s counsel, the Receiving Party is legally compelled to disclose or that has been requested by such Governmental Body; provided, however, that the Receiving Party shall use reasonable efforts to obtain reliable assurance that confidential treatment will be accorded by any Person to whom any Confidential Information is so disclosed. The provisions of this Section 9.4 do not apply to any Proceedings between the parties to this Agreement.

9.5 Attorney-Client Privilege. The Disclosing Party is not waiving, and will not be deemed to have waived or diminished, any of its attorney work product protections, attorney-client privileges or similar protections and privileges as a result of disclosing its Confidential Information (including Confidential Information related to pending or threatened litigation) to the Receiving Party, regardless of whether the Disclosing Party has asserted, or is or may be entitled to assert, such privileges and protections. The parties (a) share a common legal and commercial interest in all of the Disclosing Party’s Confidential Information that is subject to such privileges and protections, (b) are or may become joint defendants in Proceedings to which the Disclosing Party’s Confidential Information covered by such protections and privileges relates, (c) intend that such privileges and protections remain intact should either party become subject to any actual or threatened Proceeding to which the Disclosing Party’s Confidential Information covered by such protections and privileges relates, and (d) intend that after the Closing the Receiving Party shall have the right to assert such protections and privileges. No Receiving Party shall admit, claim or contend, in Proceedings involving either party or otherwise, that any Disclosing Party waived any of its attorney work-product protections, attorney-client privileges or similar protections and privileges with respect to any information, documents or other material not disclosed to a Receiving Party due to the Disclosing Party disclosing its Confidential Information (including Confidential Information related to pending or threatened litigation) to the Receiving Party.

ARTICLE X

TERMINATION

10.1 Termination Events. This Agreement may, by notice given prior to or at the Closing, be terminated:

(a) by Buyer if a material breach or violation of any provision of this Agreement has been committed by Seller and such breach or violation has not been waived;

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(b) by Seller if a material breach or violation of any provision of this Agreement has been committed by Buyer and such breach or violation has not been waived;

(c) by Buyer if any of the conditions in Article V has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such condition on or before the Closing Date;

(d) by Seller if any of the conditions in Article VI has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Seller to comply with its obligations under this Agreement) and Seller has not waived such condition on or before the Closing Date;

(e) by mutual consent of Buyer and Seller; or

(f) by Buyer if the Closing has not occurred (other than through the failure of Buyer to comply fully with its obligations under this Agreement) on or before January 1, 2008 or such later date as the parties may agree upon.

(g) by Seller if the Closing has not occurred (other than through the failure of Seller to comply fully with its obligations under this Agreement) on or before January 1, 2008 or such later date as the parties may agree upon.

10.2 Effect of Termination. The right of termination under Section 10.1 is in addition to any other right a party may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 10.1, all further obligations of the parties under this Agreement will terminate; provided, however, that if this Agreement is terminated by a party because of the breach or violation of the Agreement by the other party or because one or more of the conditions to the terminating party’s obligations under this Agreement is not satisfied as a result of the other party’s failure to comply with its obligations under this Agreement, the terminating party’s right to pursue all legal remedies will survive such termination unimpaired.

ARTICLE XI

GENERAL PROVISIONS

11.1 Expenses. Except as otherwise provided in this Agreement, each party to this Agreement will bear its respective fees and expenses incurred in connection with the preparation, negotiation, execution and performance of this Agreement and the Contemplated Transactions, including all fees and expense of its Representatives.

11.2 Public Announcements. Any public announcement, press release or similar publicity with respect to this Agreement or the Contemplated Transactions will be issued, if at all, at such time and in such manner as Buyer determines. Except with the prior consent of Buyer or as permitted by this Agreement, Seller shall not disclose to any Person (a) the fact that any Confidential Information of Seller has been disclosed to Buyer or its Representatives, that Buyer or its Representatives have inspected any portion of the Confidential Information of Seller, that any Confidential Information of Buyer has been disclosed to Seller, or that Seller or its Representatives have inspected any portion of the Confidential Information of Buyer, or (b) any information about the Contemplated Transactions, including the status of

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such discussions or negotiations, the execution of any documents (including this Agreement) or any of the terms of the Contemplated Transactions or the related documents (including this Agreement). Seller and Buyer will consult with each other concerning the means by which Seller’s employees, customers, suppliers and others having dealings with Seller will be informed of the Contemplated Transactions, and Buyer will have the right to be present for any such communication.

11.3 Notices. All notices, Consents, waivers and other communications required or permitted by this Agreement shall be in writing and shall be deemed given to a party when (a) delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid), (b) sent by facsimile or e-mail with confirmation of transmission by the transmitting equipment, or (c) received or rejected by the addressee, if sent by certified mail, return receipt requested, in each case to the following addresses, facsimile numbers or e-mail addresses and marked to the attention of the person (by name or title) designated below (or to such other address, facsimile number, e-mail address or person as a party may designate by notice to the other parties):

Seller:

57151 Manitoba Ltd.

c/o 5540 Hampstead Place

Burnaby, British Columbia V5E 4E7

Attention: Kerry Tatelman

e-mail: zero829@shaw.ca

with a mandatory copy to:

Fillmore Riley LLP

1700 Commodity Exchange Tower

360 Main Street

Winnipeg, Manitoba

R3C 3Z3

Attention: Glen Peters

Phone: (204) 957-8318

Fax: (204) 954-0318

Email: glenpeters@fillmoreriley.com

Buyer:

Caraustar Industries, Inc.

Attn: Steven L. Kelchen

Austell-Powder Springs Road, Suite 300

Austell, GA 30106

Telephone: 770-799-5808

Facsimile: 770-732-3433

Caraustar Industries, Inc.

Caraustar Legal Department

Attn: Wilma Beaty, Esq.,

VP, General Counsel and Secretary

Post Office Box 115

Austell, Georgia 30168-0115

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Telephone: 770-745-3745

Facsimile: 770-799-5990

with a mandatory copy to:

Morris, Manning & Martin, LLP

3343 Peachtree Road, N.E.

Suite 1600

Atlanta, Georgia 30326

Attention: John F. Sandy Smith, Esq.

Fax no.: (404) 365-9532

E-mail address: jfs@mmmlaw.com

11.4 Jurisdiction; Service of Process. Any Proceeding arising out of or relating to this Agreement or any Contemplated Transaction may be brought in the courts of the Province of Manitoba, and each of the parties irrevocably submits to the exclusive jurisdiction of each such court in any such Proceeding, waives any objection it may now or hereafter have to venue or to convenience of forum, agrees that all claims in respect of the Proceeding shall be heard and determined only in any such court and agrees not to bring any Proceeding arising out of or relating to this Agreement or any Contemplated Transaction in any other court. The parties agree that either or both of them may file a copy of this paragraph with any court as written evidence of the knowing, voluntary and bargained agreement between the parties irrevocably to waive any objections to venue or to convenience of forum. Process in any Proceeding referred to in the first sentence of this section may be served on any party anywhere in the world.

11.5 Enforcement of Agreement. Each of Seller and Buyer acknowledges and agrees that the other party would be irreparably damaged if any of the provisions of this Agreement are not performed in accordance with their specific terms and that any Breach of this Agreement by such other party could not be adequately compensated in all cases by monetary damages alone. Accordingly, in addition to any other right or remedy to which Buyer or Buyer, as the case may be, may be entitled, at law or in equity, it shall be entitled to enforce any provision of this Agreement by a decree of specific performance and to temporary, preliminary and permanent injunctive relief to prevent Breaches or threatened Breaches of any of the provisions of this Agreement, without posting any bond or other undertaking.

11.6 Waiver; Remedies Cumulative. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither any failure nor any delay by any party in exercising any right, power or privilege under this Agreement or any of the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or any of the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party, (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given, and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of that party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

11.7 Entire Agreement and Modification. This Agreement supersedes all prior agreements, whether written or oral, between the parties with respect to its subject matter (including any letter of intent and any confidentiality agreement between Buyer and Seller) and constitutes (along with the

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Schedules, Exhibits and other documents delivered pursuant to this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended, supplemented, or otherwise modified except by a written agreement executed by the party to be charged with the amendment.

11.8 Schedules. The information in the Schedules delivered by Seller constitutes (i) exceptions to particular representations, warranties, covenants and obligations of Seller as set forth in this Agreement or (ii) descriptions or lists of assets and liabilities and other items referred to in this Agreement. If there is any inconsistency between the statements in this Agreement and those in the Schedules (other than an exception expressly set forth as such in the Schedules with respect to a specifically identified or appropriately cross-referenced representation or warranty), the statements in this Agreement will control.

11.9 Assignments, Successors and No Third-Party Rights. No party may assign any of its rights or delegate any of its obligations under this Agreement without the prior written consent of the other parties, except that Buyer may assign any of its rights and delegate any of its obligations under this Agreement to any Subsidiary of Buyer and may collaterally assign its rights hereunder to any financial institution providing financing in connection with the Contemplated Transactions. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of, the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement, except such rights as shall inure to a successor or permitted assignee pursuant to this Section 11.9.

11.10 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

11.11 Construction. The headings of Articles and Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to “Articles” and “Sections” refer to the corresponding Articles and Sections of this Agreement.

11.12 Time of Essence. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.

11.13 Governing Law. This Agreement will be governed by and construed under the laws of the Province of Manitoba and the laws of Canada applicable therein without regard to conflicts-of-laws principles that would require the application of any other law.

11.14 Execution of Agreement. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. The exchange of copies of this Agreement and of signature pages by facsimile transmission shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by facsimile shall be deemed to be their original signatures for all purposes.

[SIGNATURES APPEAR ON FOLLOWING PAGE]

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IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the date first written above.

BUYER:		SELLER:
CARAUSTAR INDUSTRIAL CANADA, INC.		2789737 MANITOBA LTD.
By:	/s/ Ronald J. Domanico	By:	/s/ Norman Tatelman
Name:	Ronald J. Domanico	Name:	Norman Tatelman
Title:	Senior Vice President	Title:	President

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Execution Version

LEASE AGREEMENT

THIS LEASE, made and effective as of the later of (i) the Closing under the Asset Purchase Agreement referred to below, and (ii) the 1^st day of January, 2008,

BETWEEN:

2789737 MANITOBA LTD.,

(the “Landlord”),

as successor by amalgamation

to 57151 MANITOBA LTD. and 2789737 MANITOBA LTD.,

- and -

CARAUSTAR INDUSTRIAL CANADA, INC.,

(the “Tenant”).

WHEREAS the Landlord, as Seller, and the Tenant, as Buyer, are parties to an Asset Purchase Agreement dated December     , 2007, (the “Asset Purchase Agreement”) pursuant to which certain assets of the Landlord are being acquired by Tenant.

WHEREAS pursuant to the Asset Purchase Agreement the Landlord and the Tenant are entering into this Lease Agreement for the lease of Premises (as hereinafter defined) and for the grant of an exclusive option to purchase the Premises in favour of Tenant, on the terms and subject to the conditions set forth herein; and

WHEREAS the “Land”, “Tangible Personal Property”, and “Improvements,” and the other initially capitalized terms not defined herein are as defined in the Asset Purchase Agreement;

NOW THEREFOR IN CONSIDERATION of the rent, mutual covenants and agreements herein contained, the Landlord and the Tenant covenant and agree with each other as follows:

ARTICLE 1 - PREMISES AND TERM

1.01 Demise. The Landlord in consideration of the rents, covenants, agreements and conditions herein to be paid, observed and performed by the Tenant, does hereby demise and lease to the Tenant the Land which is municipally known as 1707 Dugald Road, Winnipeg, Manitoba, and legally described on Schedule “A” attached hereto, together with the building and certain other Improvements located thereon (collectively, the Land, and such building and Improvements being defined as the “Premises”).

1.03 Term. The Tenant shall have and hold the Premises for a term of three (3) years commencing on the date hereof and ending on December 31, 2010 (the “Term”).

1.04 Quiet Enjoyment. If the Tenant punctually pays the Rent due under this Lease and complies with its obligations under this Lease, the Tenant shall peaceably possess and enjoy the Premises during the Term without any interruption or disturbance from the Landlord or any person or persons claiming by, through or under the Landlord.

1.05 Renewal. Provided the Tenant pays the Rent as and when due, and subject to the Tenant Set-off Right (defined in Section 2.04 below), and provided the Tenant observes and performs the material terms, covenants and conditions to be observed and performed by it in accordance with the terms of this Lease, the Tenant shall have the option to renew the term of this Lease for two (2) further period of one (1) year each (the “Renewal Terms”) upon the following terms and conditions:

(a) The Tenant shall give the Landlord written notice of Tenant’s intention to renew this Lease at least 120 days prior to the expiry of the Term or the first Renewal Term, as applicable;

(b) All terms and conditions of this Lease shall apply to the Renewal Terms with the exception of the amount of the Base Rent and this renewal option;

(c) The Base Rent (defined below) for the Renewal Terms shall be as set forth in Section 2.01 below.

1.06 Exclusive Purchase Option. The Landlord hereby grants unto the Tenant the exclusive right and option to purchase from the Landlord at Tenant’s discretion, so long as the Tenant is not in unremedied material default under the terms of this Lease, all right, title and interest of the Landlord in and to the Premises (the “Option”) at any time during the Term or the Renewal Terms by giving at least thirty (30) days written notice of such election to the Landlord. The purchase price for the Premises in connection with Tenant’s exercise of such option shall be CDN $3,500,000.00 and the purchase and sale of the Premises following exercise of the option will be subject to the terms and conditions of the Agreement of Purchase and Sale attached hereto as Schedule “B”. Nothing herein obligates Tenant to exercise the Option.

1.07 Definitions. In this Lease:

(a) “Additional Rent” means all amounts payable pursuant to the terms of this Lease by the Tenant to the Landlord except Base Rent, whether or not specifically designated as Additional Rent elsewhere in this Lease;

(b) “Tenant Maintenance” means any and all repairs, replacements, and maintenance of the Premises to include routine periodic maintenance and cleaning of the Premises, and repairs ancillary thereto, to keep the Premises debris free and in generally the same appearance and operating condition as exists on the date hereof, ordinary wear and tear excepted, and excludes all Landlord Repairs and Replacements.

(c) “Base Rent” shall have the meaning provided in Section 2.01;

(d) “Rent” means the aggregate of the Base Rent and Additional Rent; and

(e) “Landlord Repairs and Replacements” means any and all capital repairs and replacements of the Premises, including the foundation system (being piles, pile caps and grade beams) and steel structure of the building and other Improvements within the Premises (being columns, joists, beams and bracings), exterior walls, the roof deck, the roof membrane and surface of the roof, replacement or capital repair of the HVAC system or associated ductwork, replacement or capital repair of the plumbing, sewer, or other utilities systems, repaying of substantial areas of the parking or roadway areas serving the Premises, and replacement or capital repair of the sprinkler system; but excluding all Tenant Maintenance and repairs and replacements necessitated by acts or omissions by the Tenant.

ARTICLE 2 - RENT, TAXES AND OTHER CHARGES

2.01 Base Rent and Additional Rent. The Tenant shall pay to the Landlord base rent (“Base Rent”) as follows:

Base Rent	Annual		Monthly
2008	$	316,200.00	$	26,350.00
2009	$	322,524.00	$	26,877.00
2010	$	328,980.00	$	27,415.00
First Renewal Term	$	335,556.00	$	27,963.00
Second Renewal Term	$	342,264.00	$	28,522.00

Base Rent is payable in equal monthly instalments payable the first day of each month during the Term, in advance, together with Additional Rent as herein provided. All of the payments set out in this Lease shall constitute Base Rent or Additional Rent, and shall be deemed to be and shall be payable as rent, whether or not any such payment is payable to the Landlord or to a third party as provided below in this Article 2, and whether or not paid as reimbursement to the Landlord for expenses to which it has been put and entitled to be reimbursed as provided in this Lease. The Landlord has all the rights against the Tenant for default in payment of Additional Rent that is has against the Tenant for default in payment of Base Rent. As to Realty Taxes (defined below) or other Additional Rent payments that Landlord requests be paid directly by Tenant to the relevant payee, if the original invoice is not delivered directly to the Tenant by the relevant payee but is instead delivered to the Landlord, the Landlord must deliver the original invoice for the amount requested to so be paid promptly upon Landlord’s receipt thereof, and in any event, at least twenty (20) days prior to the date when the invoiced amount is due. In the event that the Landlord does not provide the Tenant with the original invoice in a timely fashion and as a result the Tenant is not able to pay the invoice by the date the invoiced amount is due, then in such case the Tenant shall not be liable or responsible for any late payment fees or penalties which may result from the late payment by the Tenant of the invoiced amount, and the Landlord will pay the same.

2.02 Realty Taxes. The Tenant shall pay to the Landlord the amount of all realty taxes, rates (including local improvement taxes and rates) and any and all taxes assessed in the future in lieu of realty taxes, assessments or levies imposed upon or charged against the Premises during the Term (“Realty Taxes”), together with the reasonable costs of appeal against disputed assessments for such Realty Taxes. The Landlord will notify the Tenant in writing if the Landlord intends to dispute the amount of any Realty Taxes assessment and will deliver copies to Tenant of all communications with the taxing authority relating thereto. Payment of Realty Taxes invoiced shall be due in equal monthly instalments over each calendar year or such shorter period within the Term such that the Landlord will have in its hands an amount sufficient to pay each instalment of Realty Taxes at least fifteen days but not more than thirty days prior to the date when such instalment is due to the taxing authorities. Prior to the commencement of each year, the Landlord shall estimate reasonably the total amount due of Realty Taxes and the amount of the equal monthly instalments thereof, based on the preceding year’s Realty Tax invoices, and notify the Tenant in writing of such estimate. From time to time during the year, the Landlord may re-estimate the amounts payable for such year based on additional Realty Taxes invoices received, in which event the Landlord shall notify the Tenant in writing of such re-estimate accordingly and fix monthly instalments for the remaining balance of such year. Provided that if the Landlord so directs, the Tenant shall pay Realty Taxes directly to the taxing authorities. In that event, the Tenant shall make payments, on or before the due date, of each instalment and shall provide to the Landlord, on demand, evidence of payment in the form of receipted bills.

2.03 Other Taxes and Charges. Landlord may retain certain utilities accounts and accounts relating to the other charges in this Section 2.03 below in Landlord’s name if the parties deem that to be more expedient, but in any event the Tenant shall pay, as and when due to the Landlord or the relevant authority to which same are owing:

(a) All taxes, licenses, rates, duties and assessments imposed, assessed or levied by any lawful authority during the Term and relating to the business as carried on in the Premises by the Tenant, and the use and occupancy of the Premises by the Tenant (and every subtenant and licensee of Tenant) and relating to or assessed with respect to the Tangible Personal Property at the Premises or to any other property owned by or installed by or on behalf of the Tenant, in, on or affixed to the Premises, whether any such taxes, licenses, rates, duties and assessments are payable by law by the Tenant or by the Landlord;

(b) All taxes payable under the Goods and Services Tax (GST), or any other tax of a similar nature pursuant to legislation enacted by Federal, Provincial or Municipal Authorities will be paid by Tenant;

(c) Tenant will pay all charges, rates and assessments imposed, assessed or levied by any lawful authority during the Term in respect of electricity, light, heat, gas, power, water, sewer, garbage rates, snow removal, telephone and utilities of whatsoever nature or kind (including works and services in connection therewith) used in or supplied to the Premises;

(d) The cost of all insurance required to be maintained by the Landlord pursuant to Article 5 hereof.

Upon request by the Landlord, the Tenant shall deliver promptly to the Landlord receipts for payment of all charges payable by the Tenant pursuant to this section 2.03 which were due and payable up to one (1) month prior to such request, and shall furnish to the Landlord, upon request, evidence of payments before the 31^st day of December in each year covering payments for the preceding year.

Landlord will pay as and when due all corporation capital taxes payable with respect to Landlord, and any and all taxes and assessments based on Landlord’s income, Rent received hereunder, or gross receipts or profits.

2.04 Net Lease. Except as otherwise provided herein, the Tenant will pay to the Landlord all Rent required to be paid by the Tenant pursuant to this Lease without any deduction, defalcation, abatement or set-off whatsoever, and the Tenant covenants with the Landlord accordingly, the Landlord and the Tenant agree and acknowledge that Tenant must pay all costs and expenses associated with Tenant’s use and operation of the Premises during the Term, with the Landlord only being obligated to pay those costs and expenses specifically provided herein to be paid by the Landlord. Tenant is entitled to offset or set-off against, and deduct from the amounts due to the Landlord hereunder, any amounts owing by or claimed in good faith against the Landlord under the Asset Purchase Agreement, pursuant to the terms and conditions of Article 8 of the Asset Purchase Agreement (the “Tenant Set-off Right”).

2.05 Irregular Periods. If, for any reason, it becomes necessary to calculate Base Rent or Additional Rent for irregular periods an appropriate pro rata adjustment will be made on a daily basis in order to compute such rent for such irregular period.

2.06 Rent Past Due. If the Tenant shall fail to pay any Rent when the same is due and payable (subject to the Tenant Set-off Right) such unpaid amount shall bear interest at the rate of twelve percent (12%) per annum (calculated monthly at the rate of one percent (1%)) such interest to be calculated, but not compounded, from the time such Rent becomes due until paid by the Tenant.

ARTICLE 3 - USE

3.01 Use of Premises. The Tenant shall not use or permit the Premises or any part thereof to be used for any purpose other than that of manufacturing, storage or distribution or office or warehouse purposes, or any use of the Premises existing as of the date hereof or otherwise approved by the Landlord in writing.

3.02 Prohibited Uses. The Tenant shall not, at any time during the Term, carry on or permit to be carried on in or on the Premises anything which is noxious or offensive and shall not do or permit to be done anything whatsoever at any time during the Term upon the Premises which would annoy or disturb or cause nuisance or damage to the occupiers or owners of lands and premises adjoining or in the vicinity of the Premises. The Tenant shall not permit any overloading of the floor of the Premises without the prior written consent of the Landlord. The Tenant shall not cause any waste or damage to the Premises. The Tenant shall not conduct on the Premises any distress sale, bankruptcy sale, going out of business sale or any other sale, designed to convey to the public that business operations are to be discontinued.

3.03 Hazardous Substances. The Tenant shall not locate, create or store on the Premises and shall not permit any of its agents, employees, suppliers, customers, invitees, sub-tenants, licensees or any other person having business with or under the control of the Tenant to locate, create or store on the Premises any Hazardous Substance. The term “Hazardous Substance” shall include, without limitation, any solid, liquid, smoke, waste, odour, heat, vibration, radiation, or combination thereof, which is deemed, classed or found to be or to affect the natural, physical, chemical or biological quality of the environment, or which is or is likely to be injurious to the health or safety of persons, or which is or is likely to be injurious or damaging to property, plant or animal life, or which interferes with or is likely to interfere with the comfort, livelihood or enjoyment of life by a person, that is declared to be hazardous or toxic under any Environmental Law, and without limiting the generality of the foregoing shall include any dangerous, noxious, toxic, flammable or explosive substance, radioactive material, asbestos or PCBs. Tenant has no liability for the presence or use of any Hazardous Substance on or near or affecting the Premises prior to the date of this Lease (“Pre-existing Hazardous Substances Liability”). Further, all of Landlord’s representations and warranties set forth in Section 3.21 of the Asset Purchase Agreement are incorporated herein by reference.

If the Tenant is in breach of the foregoing prohibition regarding the location, creation or storage of Hazardous Substances, the Landlord, in addition to all other remedies it has under this Lease, may require the Tenant at the Tenant’s cost to cause such Hazardous Substance or Substances to be removed to cause the Premises to be properly restored and repaired all in accordance with any applicable laws, by-laws, rules, regulations or orders. Alternatively, at its option, the Landlord may cause such Hazardous Substance or Substances to be removed and may repair and restore the Premises and may cause its employees or agents to enter on the Premises for such purpose. Should the Landlord undertake such removal, repair or restoration the Tenant shall forthwith pay to the Landlord a fee equal to 2% of the total cost of such removal, repair or restoration and the cost of such removal, repair or restoration and shall be recoverable as Additional Rent reserved hereunder.

The Tenant hereby indemnifies and holds the Landlord harmless from and against all loss, cost, damage and expense (including, without limitation, legal fees on a solicitor and own client basis and costs incurred in the investigation, defence and settlement of claims) that the Landlord incurs as a result of or in connection with or arising from the breach of this Section 3.03 by the Tenant or Tenant’s violation of Environmental Laws, excluding in any and all events, claims or liability relating to Pre-existing Hazardous Substances Liability and any claims relating to a breach of Landlord’s warranties made pursuant to this Section 3.03.

Landlord hereby indemnifies and holds harmless the Tenant, its successors, assigns, and related companies, from and against all loss, cost, liability, damage and expense (including, without limitation, legal fees on a solicitor and own client basis and costs incurred in the investigation, defence and settlement of claims) incurred or asserted as a result of or in connection with or arising from Pre-existing Hazardous Substances, Landlord’s violation of Environmental Laws, or Landlord’s breach of its warranties made pursuant to this Section 3.03.

3.04 Signs. The Tenant may identify its business on a sign at the entrance to the Premises and on the front of the building and in all events must, at its cost, acquire all

requisite municipal or other governmental permits which may be required to erect or maintain any such signs, and any other sign or advertisement approved by the Landlord pursuant hereto. If the Tenant wishes to place any other signs or advertisements at the Premises or to replace the two Tenant signs permitted under this Section with substantially different signs, the Tenant must first obtain the Landlord’s prior written consent to do so, which consent will not be unreasonably withheld. The Tenant also agrees that any sign or advertisement so placed or fixed to the exterior or any outside part of the Premises shall be maintained in a proper state of repair and that it shall indemnify and hold harmless the Landlord from and against all liability for personal injuries, death or property damage or loss caused from the placing or fixing any such sign or advertisement. Notwithstanding the foregoing the Landlord acknowledges and consents to the continued existence of all signs on the Premises as at the date hereof.

ARTICLE 4 - MAINTENANCE, REPAIR AND ALTERATIONS

4.01 Acceptance of Premises. Except for the Landlord’s warranties in this Lease, the Tenant accepts the Premises in “as is” condition, and except as set forth herein, Landlord shall not be liable or bound to make any alteration, remodelling or decoration of or installation of equipment or fixtures in the Premises.

Subject to the terms of the Asset Purchase Agreement, including without limitation the time limitations on the survival of covenants, representations and warranties, the limitations on the amounts that may be claimed by the Tenant, and the basket clauses, all as set forth in Article 8 of the Asset Purchase Agreement, Landlord’s warranties as Vendor set forth in Article 3 of the Asset Purchase Agreement relating to the Premises are incorporated herein by this reference and shall be as if fully set forth in this Lease and made expressly herein by Landlord.

4.02 Landlord Repairs and Replacement: Tenant Maintenance.

(a) The Landlord throughout the Term shall be responsible at its sole cost and expense for performance of the Landlord Repairs and Replacement. In fulfilling its obligations pursuant to this section 4.02, the Landlord shall be entitled to enter the Premises and shall act as expeditiously as is reasonably practical in the circumstances.

(b) The Tenant throughout the Term shall be responsible at its sole cost and expense for performance of the Tenant Maintenance.

(c) Should the Tenant or the Landlord failure to perform its obligations under this Article, then the obligations of the nonperforming party may be performed by the other party, and such performance will be at the nonperforming party’s cost and expense and subject to the indemnification provisions herein.

4.03 Inspection. The Landlord’s representatives may enter upon the Premises at all reasonable times and during any emergency to inspect the state of repair and to perform maintenance, and replacements, upon reasonable advance notice to Tenant and without disruption to Tenant’s business or operations.

4.04 Repairs According to Notice. Without restricting the generality of Section 4.02, the Tenant, promptly upon notice by the Landlord, shall make and do all repairs and maintenance for which it is responsible. If the Tenant fails to repair or maintain them within a reasonable time, then the Landlord may cause such repairs and maintenance to be undertaken and may cause its employees and agents to enter on the Premises for such purpose. If any replacement or repair by the Tenant or the Landlord (not necessitated by Tenant’s misuse or neglect) require that more than 20% of the Premises be unavailable or inaccessible to Tenant for a period exceeding three (3) days, then all payments of Rent during the period of unavailability, inaccessibility, or inoperability will be abated.

4.05 Landlord’s Approval of Alterations. Notwithstanding anything to the contrary in this Lease, the Tenant shall not make to or erect in the Premises any installations, alterations, additions or partitions (“Alterations”) without having received the prior written approval of the Landlord to the plans and specifications and any variation or amendment thereof, which approval is not a substitute for the approval of any relevant statutory authority and will not be unreasonably withheld, delayed, or conditioned. The Landlord shall be entitled to recover, as Additional Rent from the Tenant, the Landlord’s actual and reasonable costs of having its architects and engineers examine such plans and specifications up to $1,000.

4.06 Construction of Alterations. The Tenant shall construct all Alterations only in accordance with the approved plans and specifications and in a good and workmanlike manner and shall proceed diligently to completion. All such construction shall be done only by persons approved in writing by the Landlord, such approval not to be unreasonably withheld. Prior to the construction of any Alterations, the parties will agree in writing as to which Alterations will be Tenant’s property and removable by it upon any termination of this Lease, and which will be part of the Premises.

4.07 Builder’s Liens. The Tenant shall pay for all expenses incurred for work performed upon, and materials incorporated into, the Premises for which it is responsible as same are due. The Tenant shall not suffer or permit any lien under The Builders’ Liens Act (Manitoba) or like statute to be registered against title to the Premises, or the interest of the Landlord therein, by reason of work, services or materials supplied or claimed to have been supplied to the Tenant or anyone holding any interest through or under the Tenant. If any such lien is registered the Tenant shall do all things necessary to obtain and register a discharge forthwith after the lien has come to the notice of the Tenant. The Landlord may, but shall not be obliged to, discharge any lien filed at any time and any amount paid by the Landlord in so doing, together with all reasonable costs and expenses of the Landlord, shall be paid to the Landlord by the Tenant on demand and if not so paid, shall be recoverable as rent in arrears.

ARTICLE 5 - INSURANCE, NON-LIABILITY AND INDEMNITY

5.01 Tenant’s Insurance. The Tenant shall purchase and keep in force throughout the Term, at the Tenant’s sole cost and expense:

(a) All risk insurance with extended coverage endorsement covering fire and other risks for all leasehold improvements made to or installed in the Premises by or on behalf of the Tenant in an amount equal to the full replacement value and for the obligation of the Tenant to make repairs to the Premises in the event of forced entry or attempted forced entry;

(b) Fire insurance with extended coverage endorsement covering all the contents of the Premises whether owned by the Tenant or for which the Tenant is responsible in an amount at least equal to the actual cash value;

(c) Comprehensive general liability insurance (including without limitation, Tenant’s fire, legal liability to a limit of $5,000,000 hereof with a cross liability clause and otherwise in amounts and on terms reasonably acceptable to the Landlord; and

(d) Plate glass coverage with respect to the Premises in amounts acceptable to the Landlord.

5.02 Landlord’s Insurance. The Landlord shall take out and keep in force throughout the Term all risk insurance on the buildings and improvements comprising the Premises, but which will exclude such parts thereof upon which the Tenant is obliged to take insurance out under section 5.01, with responsible insurance companies and in an amount such as would be carried by a prudent owner. The cost of such insurance shall be paid by the Tenant to the Landlord as Additional Rent. Notwithstanding any contribution by the Tenant to the cost of the insurance premiums for the Landlord’s insurance, the Tenant acknowledges that it has no right to receive any proceeds from any such policy of insurance carried by the Landlord.

5.03 Policies. All policies required hereunder shall be procured from and maintained with insurers, and upon terms and in amounts, satisfactory to the parties, acting reasonably. Each party shall furnish to the other copies of all such policies held by that party, or insurance certificates in lieu thereof, and shall provide written notice of the continuation of such policies not less than ten (10) days prior to their respective expiry dates. The Tenant shall pay the premium for each such policy. If the either party fails to keep in force such insurance the other may but shall not be obligated to effect such insurance, the cost thereof being recoverable from the delinquent party forthwith on demand.

5.04 Additional Insureds; Waiver of Subrogation. The Tenant policies required hereunder shall include the Landlord as an additional named insured with cross-liability clauses, where appropriate. The Landlord policies required hereunder shall include the Tenant as additional named insured with cross liability policies, where appropriate. Anything in this Lease to the contrary notwithstanding, the Landlord and the Tenant each hereby waive any and all rights of recovery, claim, action, or cause of action, against the other, its agents, officers, or employees, for any loss or damage that may occur to the Premises or a part thereof, or any improvements thereto, or any personal property of such party therein, by reason of fire, the elements, or any other cause(s), regardless of cause or origin, including negligence of the other party hereto, its agents, officers or employees, to the extent that such loss or damage is covered by insurance required to be maintained under this Article 5 (whether or not such insurance is in effect) or to the extent such loss or damage is actually covered by any other insurance carried by each of them. The Landlord and the Tenant acknowledge that the waivers and releases set

forth in this subparagraph are intended to result in any loss or damage which is covered by insurance, being borne by the insurance carrier of the Landlord or the Tenant, as the case may be, or by the party having the insurable interest to the extent that such loss is not covered by insurance and this Lease requires such party to maintain insurance to cover such loss. Landlord and Tenant agree that such waivers and releases were freely bargained for and willingly and voluntarily agreed to by Landlord and Tenant and do not constitute a violation of public policy.

5.05 Non-liability of Landlord. Except for the negligence of the Landlord or as arises from Landlord’s failure to maintain the Premises as required under this Lease, the Tenant agrees that the Landlord shall not be liable or responsible in any way for any personal injury that may be sustained by the Tenant or any employee or customer of the Tenant, or of any other person who may be upon the Premises or sidewalks, parking areas, highways or loading areas adjacent thereto, or for any loss of or damage or injury to, property belonging to or in the possession of the Tenant or any employee or customer of the Tenant or any other person, and without limiting the generality of the foregoing, the Landlord shall not be liable or responsible in any way for any injury, loss or damage to person or property caused by smoke, steam, water, ice, rain, snow or fumes which may leak, issue or flow into, through or from the Premises or from the water sprinkler, drainage or smoke pipes or plumbing equipment therein (as long as these have not leaked due to a condition pre-existing the date of this Lease) or from any other place or quarter or caused by or attributable to the condition or arrangement of any electrical or other wiring or the air-conditioning equipment (as long as these have not failed due to a condition pre-existing the date of this Lease), or, for any matter or thing of whatsoever nature or kind arising from the Tenant’s use and occupation of the Premises.

5.06 Indemnification by Tenant. The Tenant does hereby indemnify and save harmless the Landlord from and against any and all liabilities, damages, costs, expenses, causes of action, claims, suits and judgments which the Landlord may incur or suffer or be put to by reason of or in connection with or arising from:

(a) any breach, violation or non-performance by the Tenant of any covenant, condition or agreement of Tenant set forth in this Lease; and

(b) any damage, injury, or loss of property or life occasioned by the Tenant’s use or occupation of the Premises; and

(c) All costs, expenses and reasonable legal fees on a solicitor and his own client basis incurred by the Landlord in enforcing this Lease (subject to any limitation contained within The Distress Act (Manitoba), or any similar legislation which may attempt to limit the costs which a Landlord may be entitled to recover in the enforcement of its rights hereunder);

except to the extent that any such claim arises as a result of a breach or the negligent performance by the Landlord of its obligations hereunder.

5.07 Indemnification by Landlord. The Landlord does hereby indemnify and save harmless the Tenant from and against any and all liabilities, damages, costs, expenses, causes of action, claims, suits and judgments which the Tenant may incur or suffer or be put to by reason of or in connection with or arising from:

(a) any breach, violation or non-performance by the Landlord of any covenant, condition or agreement of Landlord set forth in this Lease; and

(b) any claim based upon the Landlord’s ownership of the Premises and not otherwise the responsibility of the Tenant hereunder; and

(c) All costs, expenses and reasonable legal fees on a solicitor and his own client basis incurred by the Tenant in enforcing this Lease;

except to the extent that any such claim arises as a result of a breach or the negligent performance by the Tenant of its obligations hereunder.

5.08 Survival of Indemnification. Sections 5.06 and 5.07 of this Lease shall survive any termination of this Lease for a period of two (2) years, anything in this Lease to the contrary notwithstanding.

ARTICLE 6 - DAMAGE AND DESTRUCTION; LOSS OF ACCESS

TO PREMISES, ETC.

6.01 Damage to or Destruction of Premises.

(a) If the Premises shall be damaged by fire or other casualty for which the Landlord is insured, but are not thereby rendered untenantable in whole or in part, the Landlord shall at its own expense cause such damage, excluding damage to Tenant’s Tangible Personal Property, to be repaired and the Base Rent shall not abate. If by reason of such occurrence the Premises shall be rendered untenantable only in part, the Landlord shall, at its own expense, cause the damage, excluding damage to Tenant’s Tangible Personal Property, to be repaired and the Base Rent meanwhile shall abate proportionately. If the Premises shall be rendered wholly untenantable by reason of such occurrence the Landlord shall at its own expense cause such damage, excluding damage to Tenant’s Tangible Personal Property, to be repaired, and the Base Rent shall abate until the Premises have been restored and rendered tenantable, or either the Landlord or the Tenant may, at its election, terminate this Lease and the tenancy hereby created by giving to the other within sixty (60) days following the date of said occurrence, written notice of their election so to do and in the event of such termination Rent shall be adjusted as of the date of said occurrence.

(b) It is understood and agreed that nothing contained in this section 6.01 shall obligate the Landlord to rebuild the Premises or any part thereof at all or according to original plans and specifications.

ARTICLE 7 - ASSIGNMENT AND SUBLETTING

7.01 Consent to Transfers. Assignments. Except as otherwise provided herein, the Tenant shall not assign or sublet or part with possession of all or any part of the Premises or Tenant’s interest under this Lease, without the prior written consent of

the Landlord, such consent not to be unreasonably or arbitrarily withheld or delayed. The consent by the Landlord to an assignment or subletting shall not constitute a waiver of its consent to a subsequent assignment or subletting. Despite an assignment to other than a Permitted Assignee (defined below), the Tenant shall remain fully liable under this Lease. An assignment of this Lease, if consented to by the Landlord, shall be prepared by the Landlord or its solicitors, and all reasonable legal costs of its preparation shall be paid by the Tenant. Notwithstanding the foregoing, Tenant may assign without Landlord’s consent, to a Permitted Assignee. A “Permitted Assignee” means (A); any business into or with which the then Tenant is merged or consolidated or to which substantially all of the then Tenant’s assets are transferred or (B) to any Affiliate of Tenant, provided that (i) the successor to Tenant has a net worth computed in accordance with generally accepted accounting principles at least equal to the greater of (1) the net worth of Tenant immediately prior to such assignment or transfer, or (2) the net worth of the original Tenant on the date of this Lease, and (ii) proof reasonably satisfactory to Landlord of such net worth is delivered to Landlord at least ten (10) days prior to the effective date of any such transaction. An “Affiliate” means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified, or any relative or spouse of such person, or any relation of such spouse. As used in this definition, “person” means any individual, entity, association, or organization, and “control” (including “controlling”, “controlled by” and “under common control”) means the possession, direct or indirect, of the power, exercised or not, to direct or manage the business or operations of a person, whether through the ownership of voting securities, by contract, or otherwise.

Landlord may not assign or transfer any right to use or occupy all or any part of the Premises, but upon thirty (30) days prior written notice to Tenant and without being released hereunder, may sell the entire Premises to a third party (subject to this Lease and all terms and conditions set forth herein, including without limitation Tenant’s purchase option).

7.02 Assignment or Sublease Form. No assignment or subletting required to be consented to shall be valid unless prior to the date of occupancy by the proposed assignee or subtenant a fully executed duplicate original of such assignment or sublease in form reasonably acceptable and satisfactory to the Landlord is delivered to the Landlord.

7.03 Encumbrance of Interest in Lease. Each party may, without the other’s prior consent in writing, mortgage, hypothecate, pledge or otherwise encumber its interests in this Lease or in the Premises in connection with any financing of such party. Any such encumbrance of the Premises by Landlord’s action will be subject to the prior rights of the Tenant under this Lease and Landlord will procure such non-disturbance agreements from its lender(s) as Tenant reasonably requires.

7.04 Disposition of Lands and Premises. Following any sale, lease, transfer or other disposition of the Premises made or given by the Tenant, Tenant shall not be released hereunder.

ARTICLE EIGHT - PERFORMANCE OF TENANT’S COVENANTS, DEFAULT AND BANKRUPTCY

8.01 Landlord may Perform Covenants. If the Tenant makes default in any of its covenants and agreements herein, then the Landlord, without limiting any other remedy which it may have, shall have the right to remedy any such default and for such purpose may at any time enter upon the Premises. No entry for such purpose shall be deemed to cause a forfeiture or termination of this Lease. In order to cure such default, the Landlord may do all things necessary to cure the default and such things as may be incidental thereto, including without limitation, the right to make repairs and to expend monies. Tenant shall reimburse the Landlord forthwith upon demand as Additional Rent hereunder the aggregate of all costs, charges and expenses incurred by the Landlord in remedying any such default plus 3% of same. The Landlord shall be under no obligation to remedy any default of the Tenant, and shall not incur any liability of the Tenant for any action or omission in the course of its remedying or attempting to remedy any such default unless such act amounts to negligence on the part of the Landlord.

8.02 Rights of Termination.

If and whenever:

(a) The Tenant shall fail to pay when due any part of the Rent for a period of seven (7) days after written notice to Tenant of such failure (subject to the Tenant Set-off Right); or

(b) The Tenant shall fail to observe, perform and keep any one or more of the covenants, provisions or stipulations (other than such as relate to payment of any part of the Rent) to be observed, performed or kept by the Tenant hereunder and if such failure shall continue for a period of fifteen (15) days after written notice to the Tenant of such failure, except that if Tenant has commenced curative actions during such period, the Tenant is entitled to such additional time as reasonably necessary to complete the curative actions; or

(c) The Term hereby granted or any of the goods or chattels on the Premises are at any time repossessed, seized, or taken in execution or attachment by any creditor of the Tenant; or

(d) A writ of execution or replevin order issues against the goods or chattels of the Tenant and remains unmediated for a period of thirty (30) days;

(e) The Tenant makes an assignment for the benefit of creditors or becoming bankrupt or insolvent takes the benefit of, or becomes subject to any statutes that may be in force relating to bankrupt or insolvent debtors (the appointment of a receiver or receiver and manager of the property and assets of the Tenant being conclusive evidence of insolvency); or

(f) Any certificate or order is made or granted for the winding-up or dissolution of the Tenant, voluntarily or otherwise; or

(g) If the Premises at any time during the Term become vacant in consequence of established abandonment by the Tenant and its operations at the Premises have ceased, which abandonment will be deemed after 30 days of uninterrupted lack of any occupancy or use of any type of the Premises by the Tenant (maintenance or vacation shutdowns of operations or the buildings at or on the Premises are not “abandonment”);

then in any of the said cases, at the option and discretion of the Landlord, and on written notice to Tenant, the Lease and the Term shall become forfeited and void and the Landlord may without notice or any form of legal process whatever forthwith re-enter the Premises or any part thereof in the name of the whole and repossess and enjoy the same as of its former estate, anything contained in any statute or law to the contrary notwithstanding. Such forfeiture shall be wholly without prejudice to the right of the Landlord to recover arrears of Rent or damages for any breach of the Tenant’s covenants, obligations or agreements under this Lease, and provided that notwithstanding any such forfeiture the Landlord may subsequently recover from the Tenant damages for loss of Rent suffered by reason of this Lease having been rendered forfeited and void as aforesaid. No such re-entry or taking possession of the Premises by the Landlord shall be construed as an election on the part of the Landlord to terminate this Lease unless at the time of or subsequent to such re-entry or taking up possession written notice of such intention has been given to the Tenant or such termination is decreed by a court of competent jurisdiction.

If and whenever:

(h) The Landlord shall fail to observe, perform and keep any one or more of the covenants, provisions or stipulations to be observed, performed or kept by the Landlord hereunder and if such failure shall continue for a period of thirty (30) days after written notice to the Landlord of such failure, except that if Tenant has commenced curative actions during such period, the Landlord is entitled to such additional time as reasonably necessary to complete the curative actions; or

(i) The Landlord makes an assignment for the benefit of creditors or becoming bankrupt or insolvent takes the benefit of, or becomes subject to any statutes that may be in force relating to bankrupt or insolvent debtors (the appointment of a receiver or receiver and manager of the property and assets of the Landlord being conclusive evidence of insolvency); or

(j) If at any time during the eighteen (18) month period commencing on the date hereof, any certificate or order is made or granted for the winding-up or dissolution of the Landlord, voluntarily or otherwise;

(k) If the Premises is seized or taken by legal process for any other cause arising with Landlord; or

(l) Tenant has claim made in good faith against Landlord (as Vendor) under the Asset Purchase Agreement for a material unremedied breach by the Landlord under the Asset Purchase Agreement, which breach has not

been remedied by the Landlord within sixty (60) days after written notice by the Tenant to the Landlord, and which claim cannot be reasonably be satisfied by the Tenant exercising the Tenant Set-off Right;

then in any of the said cases, at the option and discretion of the Tenant, and on written notice to Landlord, this Lease shall become forfeited and void and the Tenant will have no further obligation to pay any Rent or otherwise have any obligations hereunder. The Tenant accepts that if the Tenant exercised the Tenant Set-off Right in connection with its right to terminate the Lease, then following adjudication of the dispute giving rise thereto and the determination that the claim supporting the Tenant Set-off Right did not have merit, then the Tenant will be liable to the Landlord for the balance due of Base Rent for the remainder of the Term as otherwise would have been in effect (the “Rental Reimbursement”). The Rental Reimbursement will be treated as past due under Section 2.06 from the date that the Tenant Set-off Right was exercised and effected, until the Rental Reimbursement is paid to the Landlord. The Rental Reimbursement will be reduced by the amount of any rent that the Landlord collects during the period following the Tenant’s termination of this Lease and the Landlord agrees that it must reasonably strive to mitigate its damages in respect thereof.

8.03 Waiver with Respect to Re-entry. If the Landlord does not exercise its option under section 8.02 to terminate this Lease it may in addition to any remedies available to the Landlord herein, or at law or in equity, from time to time, re-enter the Premises without terminating this Lease, make such alterations and repairs as may be necessary in order to relet the Premises as agent of the Tenant for such period or periods (which may extend beyond the Term) and at such rentals and upon such terms and conditions as the Landlord in its sole discretion may deem advisable. All reasonable expenses the Landlord may incur in reletting the Premises, including legal fees and disbursements and real estate fees and commissions and expenses of preparing the Premises for reletting shall be paid by the Tenant to the Landlord forthwith on demand. Upon such reletting, rent received by the Landlord shall be applied first to the payment of said reasonable expenses, second to the payment of any indebtedness (other than Rent) due from the Tenant to the Landlord, and third, to the payment of Rent. The residue, if any, shall be held by the Landlord and applied in payment of future rent as the same may become due and payable. If rentals received from such reletting during any month are less than that to be paid during that month by the Tenant hereunder, the Tenant shall forthwith pay any such deficiencies to the Landlord. No re-entry or taking possession of the Premises by the Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention has been given to the Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, the Landlord may at any time thereafter elect to terminate this Lease by reason of such previous event. Should the Landlord at any time terminate this Lease by reason of any such event, in addition to any other remedies it may have, it may recover from the Tenant all damages it may incur with respect thereto including the cost of recovering the Premises and the worth at the time of such termination of the excess, if any, of the amount of Rent, for the remainder of the Term over the then reasonable rental value of the Premises for the remainder of the Term, all of which rent shall be immediately due and payable from the Tenant to the Landlord.

8.04 Remedies of Landlord and Tenant are Cumulative. The respective remedies of the Landlord and Tenant under this Lease are cumulative and are in addition to any remedies of the Landlord at law or in equity but separate from any remedies set forth in the Asset Purchase Agreement. No remedy shall be deemed to be exclusive.

8.05 Bankruptcy and Insolvency. In the event of default by the Tenant pursuant to subsection 8.02(e) then the then current and next ensuing three (3) months Basic Rent and Additional Rent shall become due and payable.

8.06 Landlord’s Rights on Re-entry. The Tenant agrees that in the event the Landlord shall be entitled to re-enter and re-take possession of the Premises after Tenant has defaulted hereunder and not cured the Tenant breach of this Lease, Landlord may use such force as it reasonably deems necessary for that purpose and for gaining admittance to the Premises without being liable in respect thereof for any loss or damage occasioned thereby. The Tenant hereby expressly releases the Landlord from all action, proceedings, claims and demands whatsoever for or in respect of any such forcible entry, or any loss or damage that may be sustained by the Tenant in respect thereto.

ARTICLE 9 - SURRENDER OF PREMISES AND REMOVAL OF FIXTURES

9.01. Surrender. Subject to Section 9.04 hereof, upon the expiration or earlier termination of this Lease or the Term and any period of overholding, the Tenant shall surrender to the Landlord possession of the Premises, in reasonable order, condition and repair in accordance with the Tenant’s obligation to repair and maintain hereunder, and free and clear of all encumbrances and claims by or through the Tenant or any creditor of the Tenant, and all the rights of the Tenant under this Lease shall terminate (but the Tenant, notwithstanding such termination, shall remain and be liable to the Landlord for any loss, damage, expenses or costs suffered or incurred by the Landlord by reason of any default by the Tenant).

9.02 Document of Surrender. If this Lease and the Term are terminated for any reason, the Tenant shall execute and deliver to the Landlord, and the Landlord shall execute and deliver to Tenant, any and all documents reasonably required to surrender this Lease and to document its termination.

9.03 Condition of the Premises. Without restricting the generality of Section 9.01, the Tenant, immediately before the expiration or earlier termination of the Lease, shall wash the floors and leave the Premises in a clean condition, ordinary wear and tear excepted.

9.04 Removal of Fixtures. If the Tenant damages the Premises during removal of any Tangible Personal Property the Tenant shall make good such damage. In no event shall the Tenant remove any part of the Premises, including without limitation any building or any plumbing, heating, air-conditioning or automatic door systems, electrical or ventilating plant or equipment or other building services. Landlord shall be entitled upon the expiration or earlier termination of this Lease to require the Tenant to, and the Tenant shall, remove its installations, alterations, additions, partitions and fixtures and anything in the nature of improvements made or installed by the Tenant and to make good any damage caused to the Premises by such removal. Landlord acknowledges Tenant’s ownership of all Tangible Personal Property and the right of the Tenant to remove all of same and any other Tenant property hereafter installed at the Premises, upon any termination or expiration of this Lease.

ARTICLE 10 - GENERAL

10.01 Obligations as Covenants. Each obligation of the Landlord or the Tenant expressed in this Lease, even though not expressed as a covenant, is considered to be a covenant for all purposes.

10.02 Non-performance by Landlord. Whenever the Landlord is unable to fulfill any obligation hereunder in respect of the provision of any service, utility, work or repairs by reason of being unable to obtain the materials, goods, equipment, service, utility or labour required to enable it to fulfill such obligation or by reason of any law or regulation or by reason of any other cause beyond its reasonable control, the Landlord will be entitled to extend the time for fulfillment of such obligation by a time equal to the duration of the delay or restriction. The Tenant will not be entitled to any compensation for any inconvenience, nuisance or discomfort thereby occasioned, or to cancel this Lease (except as otherwise specifically provided in this Lease).

10.03 Overholding. If the Tenant remains in possession of the Premises after the expiration of this Lease and without the execution and delivery of a new lease, the Landlord may re-enter and take possession of the Premises and remove the Tenant therefrom and the Landlord may use such force as it may deem necessary for that purpose without being liable in respect thereof or for any loss or damage occasioned thereby; PROVIDED THAT while the Tenant remains in possession after the expiration of this Lease, and the Landlord accepts rent, the tenancy, in the absence of written agreement, will be from month to month only at a rent per month equal to two (2) times the Base Rent and Additional Rent payable in respect of the month immediately preceding expiration of this Lease, in each case payable in advance on the 1st day of each month and shall be subject to all terms of this Lease, except that the tenancy will be from month to month and a tenancy from year to year will not be created by implication of law.

10.04 Signs. The Landlord may from time to time place upon the Premises notices of reasonable dimensions and reasonably placed so as not to interfere with the business of the Tenant stating that the Lands are for sale, and during the last four months of the Term may similarly place signs stating that the Premises are for let.

10.05 Inspection. The Landlord or its representatives may exhibit the Premises upon reasonable notice at reasonable times to prospective tenants during the last four months of the Term and may also exhibit the Premises at reasonable times for the purposes of the Landlord’s own financing and for prospective purchasers, provided such inspections shall be conducted with minimal disruption to the Tenant’s business.

10.06 Acknowledgment by the Tenant. The Tenant will execute promptly, when requested by the Landlord, a certificate (which may be referred to as an estoppel certificate) in favour of any mortgagee or purchaser of the Landlord certifying the status of this Lease, any modifications or breaches of this Lease, and the status of the rent account, and any other matters which may reasonably be requested by the Landlord, all with the intent that any such acknowledgment or certificate may be relied upon by any party to whom it is directed.

10.07 Acknowledgment by the Landlord. The Landlord will execute promptly, when requested by the Tenant, an estoppel certificate in favour of any prospective mortgagee or purchaser of the Tenant certifying the status of this Lease, any modifications or breaches of this Lease, and the status of the rent account, and any other matters which may reasonably be requested by the Tenant, all with the intent that any such estoppel certificate may be relied upon by any party to whom it is directed.

ARTICLE ELEVEN - INTENT AND INTERPRETATION

11.01 Sections and Headings. The division of this Lease into Articles, sections and subsections and the insertion of headings are for convenience of reference only and shall not affect the interpretation of this Lease. Unless otherwise indicated, any reference in this Lease to an Article, section, subsection or Schedule refers to the specified Article, section or subsection of or Schedule to this Lease.

11.02 Number, Gender and Persons. In this Lease, words importing the singular number only shall include the plural and vice versa, words importing gender shall include all genders and words importing persons shall include individuals, corporations, partnerships, associations, trusts, unincorporated organizations, governmental bodies and other legal or business entities of any kind whatsoever.

11.03 Entire Agreement. This Lease and the schedules hereto constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether written or oral. There are no conditions, covenants, agreements, representations, warranties or other provisions, express or implied, collateral, statutory or otherwise, relating to the subject matter hereof except as herein provided.

11.04 Time of Essence. Time shall be of the essence of this Lease.

11.05 Applicable Law. This Lease shall be construed, interpreted and enforced in accordance with, and the respective rights and obligations of the parties shall be governed by, the laws of the Province of Manitoba and the federal laws of Canada applicable therein, and each party irrevocably and unconditionally submits to the non-exclusive jurisdiction of the courts of such province and all courts competent to hear appeals therefrom.

11.06 Successors and Assigns. This Lease shall enure to the benefit of and shall be binding on and enforceable by the parties and, where the context so permits, their respective successors and permitted assigns.

11.07 Amendments and Waivers. No amendment or waiver of any provision of this Lease shall be binding on either party unless consented to in writing by such party. No waiver of any provision of this Lease shall constitute a waiver of any other provision, nor shall any waiver constitute a continuing waiver unless otherwise provided.

11.08 Schedules. The following are schedules attached to and incorporated in this Lease by reference:

Schedule “A”	Legal Description of the Land and description of the Premises
Schedule “B”	Agreement of Purchase and Sale

11.9 Notices. All notices and other communications hereunder given by either party to the other must be made in the manner and to the addresses, provided in the Asset Purchase Agreement.

11.10 Partial Invalidity. If for any reason whatsoever any term, covenant or condition of this Lease or the application thereof is to any extent held or rendered invalid, unenforceable or illegal, then such term, covenant or a condition is deemed to be independent of the remainder of this Lease and to be severable and divisible therefrom and its invalidity, unenforceability or illegality does not affect, impair or invalidate the remainder of this Lease, or any part thereof and continues to be applicable to and enforceable to the fullest extent permitted by law.

11.11 Caveat. The Tenant shall be entitled to register, at its expense, a notice or caveat evidencing its interest in the Lease or Premises against the title to the Premises provided that the Lease is not attached to such caveat or notice and that the notice or caveat does not directly or indirectly disclose the financial arrangements of the Lease.

11.12 Counterparts. This Lease may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed to constitute one and the same instrument. Counterparts may be executed either in original or faxed form and the parties adopt any signatures received by a receiving fax machine as original signatures of the parties; provided, however, that either party providing its signature in such manner shall, upon request, promptly forward to the other party an original of the signed copy of this Lease which was so faxed.

IN WITNESS WHEREOF the parties have executed this Lease as of the day and year first above written.

[Execution on next page]

2789737 MANITOBA LTD., successor by amalgamation to 57151 MANITOBA LTD. and 2789737 MANITOBA LTD.
Per:	/s/ Norman Tatelman
Per:
CARAUSTAR INDUSTRIAL CANADA, INC.
Per:	/s/ Wilma Beaty
Per:

Execution Version

Schedule “A”

Premises

Legal Description of the Land; Description of Improvements

Firstly: All that portion of OTM Lot 75 of the Parish of St. Boniface lying to the South of the Southern Limit of the Land taken for the Right of Way of the Canadian National Railway as same is shown on a Plan registered as no. 1276 WLTO, which lies to the West of a line drawn NLY from a point in the Southwestern Limit of said Lot distant SELY thereon 356.2 Feet from the said Southern Limit, said last mentioned line forming an angle on its Western side of 74 degrees, 27 minutes, and 30 seconds with the said Southwestern Limit.

Secondly: All that portion of Block Lettered A, which Block is shown on a plan of Survey of Part of the Roman Catholic Mission Property, in Manitoba, registered in the said office as no. 433, which lies between two lines drawn at right Angles to the Southern Limit of said Block from points in the same distant WLY thereon 1029.1 Feet and 1371.69 Feet respectively from the Eastern angle of said Block.

Thirdly: Parcel Lettered D which Parcel is shown bordered green on a Plan of Survey of River Lot 120, Parish of St. Boniface, and of Part of Said Block A filed in the said office as No. 14838.

Improvements: Building

Execution Version

Schedule “B”

Agreement of Purchase and Sale

EX-31.01

EXHIBIT 31.01

CERTIFICATION OF CEO – Pursuant To

SECURITIES EXCHANGE ACT RULE 13a – 14(a)/15d – 14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES OXLEY ACT OF 2002

I, Michael J.Keough, President and Chief Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Caraustar Industries, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f), for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosures, controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

	By:	/s/ Michael J. Keough
Date: May 9, 2008		Michael J. Keough President and Chief Executive Officer

EX-31.02

EXHIBIT 31.02

CERTIFICATION OF CFO – Pursuant to

SECURITIES EXCHANGE ACT RULE 13a – 14(a)/15d – 14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES OXLEY ACT OF 2002

I, Ronald J. Domanico, Senior Vice President and Chief Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Caraustar Industries, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f), for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosures, controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

	By:	/s/ Ronald J. Domanico
Date: May 9, 2008		Ronald J. Domanico Senior Vice President and Chief Financial Officer

2

EX-32.01

EXHIBIT 32.01

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Caraustar Industries, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	By:	/s/ Michael J. Keough
Date: May 9, 2008		Michael J. Keough President and Chief Executive Officer

3

EX-32.02

EXHIBIT 32.02

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Caraustar Industries, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	By:	/s/ Ronald J. Domanico
Date: May 9, 2008		Ronald J. Domanico Senior Vice President and Chief Financial Officer

4